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CRYPTO 101
Ep. 734 Crypto's Future with Coinbase: Institutional Strategies and Innovations with John D'Agostino
00:52:46
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Podcast Host (Ad Read)
are you curious about the economic forces shaping your daily life the planet money podcast from npr makes sense of the economy in ways you'll actually understand and enjoy guys you love listening to the rundowns i get some of that information from this npr planet money podcast especially recently with the war going on the straight of hormuz you're just kind of getting those updates as they come from these guys they put out a ton of awesome content it's a different perspective from crypto one hundred one but still a great listen so go over there and check out the planet money podcast if stuff like current events and the finance world interest you each story on planet money starts with a question recent episodes ask why pokemon cards are growing faster than your retirement count questions about the war just like we talked about recently a lot on our program from the job market to the stock market to prices at the supermarket planet money explains it all planet money is a different kind of world where the complex economy somehow makes sense where human stories supersede abstract theories so you can learn laugh and be entertained it's econ but just down to earth the hosts go to unusual lengths to explain the economy they've published their own book to track the global supply chain they've shot a satellite into space to understand the economics of the private space industry they've gone inside a live book auction to show how ideas get to market it's the kind of show where you learn something probably laugh and walk away seeing the world a little differently and i think if you like crypto one hundred and one you'll enjoy planet money so maybe check that out follow npr's planet money podcast and understand how money shapes the world one thing i love about summer is everything's just getting easier you're outside more you're taking vacations and it's the time where you're really not trying to overthink every outfit you just want stuff that feels good works and sometimes is a little cool that's why i keep coming back to quints they make those pieces that you end up just wearing all season for me it's the one hundred percent european linen shirt and the matching linen pants that has become one of my go to beach vacation outfits i've gotten so many compliments on it it's breathable it's comfortable it looks put together but it still feels relaxed you can literally wear this thing going to the beach all day walking by the water for a sunset and then head straight to dinner later feeling completely comfortable and looking fashionable and that's really what quint does well they're one hundred percent european linen pants and shirts are easy to wear perfect for summer and the price is unbelievable and they start at literally just thirty four dol they also have soft tees you can wear all day plus lightweight cotton sweaters that are perfect for when the temperature drops a little at night everything at quince is priced fifty to eighty percent less than similar brands they work directly with ethical factories and cut out the middleman so you're paying for exceptional quality not the brand markup and it's not just clothing quince has become one of those brands people trust for home travel and everyday essentials too you've heard me talk about their website before it's super fun to scroll around they literally have everything so make your summer wardrobe easier go to quints dot com crypto one hundred and one for free shipping on your order and three hundred and sixty five day returns now available in canada too that's q u i n c e dot com crypto one hundred one for free shipping and three hundred sixty five day returns quince dot com crypto one hundred
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Sponsor Voice
one
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Bryce (Host)
all right everybody welcome back to another episode of the crypto one hundred and one podcast i'm your host bryce as always joined by my good buddy across the country brendan how you doing
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Brendan (Co-Host)
sir i'm doing good bryce how about
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Bryce (Host)
yourself you know no complaints at all we've got an incredible guest today so look i i'm super excited i have seen john d' agostino on cnbc pretty much every week for the past couple weeks and so it is a a true joy that to have you john join us head of coinbase's institutional strategy john welcome to the show how you
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John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
doing i'm doing great bryce thanks thanks to you and brendan for having me
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Bryce (Host)
today yeah no we're really pumped you know we've had different folks from the coinbase ecosystem join us and so we're really excited to dive into particularly things that you are all doing on the institutional side you know which is probably in my opinion the most interesting aspect of coinbase because that's what's going to be driving the adoption that's what's going to be driving over the course of the next decade really the big price movements in crypto as well so we're not going to be speculating on price we're not going to be providing financial or investment advice or recommendations but we are going to be looking at the landscape from high level before we do john we just want to get acquainted with you with the audience tell us a little bit about how you got into crypto into the role that you
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John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
are right now sure have to do it the quick version is i've always been attracted to sort of idiosyncratic asset classes so when i graduated business school instead of going the traditional route i took a weird job with a weird little building on the corner of north end avenue in new york called the new york mercantile exchange and that's where commodity derivatives were traded yeah the nymex yeah back when it was where i caught the tail end of the open outcry era the sort of wild crazy days any of your older viewers ever saw the movie trading places that was filmed on the floor with eddie murphy yeah that was filmed on the floor of the exchange so got to see the sort of tail end and what was interesting is i got to see capital markets undergo one major transformation which was shifting from open outcry to electronic trading or the electronification of trading and i always just liked i liked volatility i liked the math was hard i liked options math it always seemed more interesting and more fun to me i built a career in that and then went on to trade at a hedge fund in the same asset class and just developed an academic curiosity about crypto i've been lecturing at mit for over a decade now and started studying crypto from an academic perspective and the way i got into it to be very frank is i wrote a paper right after the dao hack and i analyzed the dao hack with an mit professor and we published this paper and in the paper i called myself a cynical enthusiast about crypto because i was super excited about the tech i was a little bit cynical about the people and that paper caught the attention of a hedge fund called polychain pretty famous fund and they put me on the board carlson we olaf i think read the paper or at least i was told he did and wound up being on the board of polychain so good practical learning about crypto there and then got the call from coinbase when they started building out their institutional arm the institutional
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Brendan (Co-Host)
side has been a booming one for sure i mean look at the last couple of years here it's been big especially on the etf side which we'll get into because you guys play a big role in a lot of those etf's that have exploded onto the scene and let's say the last two or so years but can you help the i would say the general audience maybe understand a little bit more a lot of them use you all we've talked about you for a while and i don't think that they're as familiar with the institutional side they say oh hey it's coinbase you know i use them as my brokerage i buy a little bitcoin and altcoins through them and i want to get into some of these other features but beyond that what really is the giant behind the scenes of
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John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
the institutional side nice i appreciate that opportunity because it is interesting to me so when people say when they talk about institutional i think they underrepresent the degree of influence that that sector is going to have on crypto so let's take for example when you say who's the biggest institutional player in crypto people say blackrock which is fair to some degree and they've been a fantastic partner of ours but the majority of of blackrock as a conduit for retail so it's through their massively successful etf and other types of products same thing when we read about big firms like fidelity and franklin templeton and schwab and everyone getting into crypto the large part that's going to largely be as a conduit to broad based retail so i know that crypto to some degree part of the wonderful characteristics of crypto is the ability of self ownership through self custodial wallets and the ability for anyone in the world who can afford some some compute and some power to participate in the ecosystem and that is a wonderful characteristic that is essential to the value proposition the reality of how most people think about their money is they rely on some type of intermediary and some type of advisor so until the day where we're all knowledgeable enough to make comfortable enough to make our own investment decisions and then more so want to i use a financial advisor i'm perfectly capable of managing my own money i choose not to i just choose to allocate that time to my children and my hobbies so i think for a long time we will be relying on these financial intermediaries and advisors and so that is a big chunk of institutional then the other piece you have is what i call asset owners so asset owners are sovereign wealth funds pension funds insurance pools who are investing on behalf of themself for the most part they may have citizens but on behalf of their own entity and then finally you have folks like hedge funds who are act like asset owners they make their own investment decisions but they have fiduciaries that they have to make money for or have responsibility to which are either retail or institutional investors if you add all those up together they are a massively powerful and influential form of capital development that's where we focus on but again it's not just making money for corporations it's assisting those corporations and those companies in assisting their retail clients which
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Brendan (Co-Host)
side would you say makes up most of the business is it the retail or the institutional so it depends i
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John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
think i should know this i think so there's volume which is largely retail and then there's profitability which i think institutional i think it's about thirty percent i'm going to get in trouble for this but i think about thirty percent now maybe a little bit higher so we certainly have more retail certainly one hundred twenty maybe even more now at this point retail users five point two million we are certainly much larger on retail one hundred twenty or more million users institutions tend to use capital markets more and they tend to use it in different ways they tend to borrow they obviously use this for custody they use this for trading best execution both just over the centralized exchange but also otc orders so your institutional business can constitute more activity over time but coinbase was first and foremost a retail organization
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Bryce (Host)
yeah no absolutely and you guys have really leaned into the new product development i think one of the coolest things that i've seen recently was the sec registered ai agent financial advisor the very first of its kind i was like when i saw this i was like oh my gosh how cool i mean this is for sure going to be the way of the future no more you know nine to five can't talk to your advisor on the weekends or the holidays or he goes on vacation and you're trying to get some orders in like this is three hundred sixty five seven days a week twenty four seven so i want to talk a little bit about maybe some of the new products that y' all have launched i know perps the perpetual derivatives contracts are starting to make a big push can you give us an overview of some of the things that maybe coinbase has launched or things that you've been involved with as well yeah sure so
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John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
we just had our system reset so brian got up on stage with some of the other leaders of the firm and talked through a ton of these wonderful wonderful products and i think thematically if you just start from the top down it's all about this notion of an everything app and consolidating the average person the average institutions financial transaction needs all in one place and so we need as a business and as an industry we need to prove the value of transacting on chain in all of its forms so we all can intuitively understand the value of receiving payment in minutes versus months that intuitively makes sense to everyone but what might not be as obvious to everyone is the value of consolidating different types of asset classes all into one fungible platform which is what we're trying to do through perps tokenized equities as well as perps on commodities and eventually moving all of that on chain to exist alongside digital assets the reason that's really important especially for institutions is it makes the process of giving and receiving leverage much safer and cleaner so if you think about if i'm long gold just physical gold or derivatives on gold and i'm short gold miners via equities it's challenging to find one institution that can effectively lend against that entire pool of assets and giving you the proper credit for the offset of the commodity position versus the short equity position and that's not their fault it's just that no one can be good at everything it's very very different it's a very different skill set very different group of people you have to hire to get good at making markets and equities versus credit versus commodities versus derivatives because they all exist on very very different systems and if we can start over time to consolidate that activity on chain and make those instruments fungible then you a improve liquidity and b you make it a lot safer to lend because as a lender i know i have an ability to sell or move those assets quickly and efficiently if
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Podcast Host (Ad Read)
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John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
out my entire four hundred one k thinking someone stole my identity a fake
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Brendan (Co-Host)
email cost me my dream home after
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John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
i sent my personal information to a
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Sponsor Voice
scammer my ai agent wired thousands to an account i'd never seen when billions
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of people feel unsafe that's no longer a security problem it's an economic one at gen we're building the trust layer for a more fearless planet with products and technologies from our global brands norton lifelock avast and moneylion see it in action at gendigital dot com you know
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Brendan (Co-Host)
one of the things that you just mentioned was the whole perps area and obviously this has been pretty closely tied to the crypto community because i would say when people think of perps right they largely think of crypto based perks right just in the same way that i would say if you think of like futures and options you probably think of the traditional markets i would as someone who's involved in both when i think of perps i think of like hey go go trade crypto but it's been kind of this back and forth especially inside the us here and i saw that recently coinbase updated its its us purple listings and this was something that launched i think it was last july and so when this update changed the term or the listing was changed from i believe it was us styled perps to now just being us perps so what does that actually change and what does that mean for the users that are interested in this kind of
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John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
thing yeah so the requirement to call it us style was based on current then regulatory requirements and the cftc came out with a relief letter no action letter that basically said that we could eliminate the need to use that modifier because we didn't have to really the only difference was we had set a very very long duration for the future for the perpetual future and they allowed us to quite frankly state the obvious which is these things really have no termination date and call it what it is which is a perpetual future and offer those to us citizens for the first time so perps have been around for a long time by the way they were not invented for crypto they were popularized for crypto but they're not invented for crypto and you know there's a lot of misunderstanding of them mostly caused by groups that don't want to see perps exist because perps solve a pretty significant problem and i came from the world's largest commodity futures exchange i love futures they're incredibly efficient instruments but the one problem they have is they're short or fixed duration instruments if you want to hold that position for a long time they just expire and then you have to sell them and buy them buy them back and that's called the role the role is problematic for the long term holder for a lot of obvious reasons first and foremost it costs money to buy and sell if you had to like if you want to keep your car for ten years but every year you had to sell it and buy it back that's not an efficient way to own a car for a long period of time the second reason is the institutions know that you have to roll them and when they know that you are forced to sell something and forced to buy something back guess what they do they step in front of both sides of that trade so the role is really really good for exchanges because it creates volume where quite frankly it doesn't need to be and it's really really good for sophisticated market participants who can time those roles so otherwise than that perps are exactly the same they they cost about the same and in fact over the longer periods of time they're a lot more economically efficient than shorter dated futures so crypto popularized them we are offering them we offer them for commodities we offer them for pre ipo equities we'll also be offering post ipo tokenized equities and so the idea is that for every stage of the life cycle you'll have the ability to get exposure if you want it and that's really what we're solving for if you think getting knicks tickets are hard try getting series b anthropic it's really you're not getting it i don't care if you're worth one hundred million bucks you're not getting it that is a closely held group of individuals in every industry that get access to those and by the way to their credit they're willing to take the risk of super early access because for every anthropic there's five hundred zeros so if we can start to give people the optionality to get exposure to that entire value chain then we can become the everything app we can become place people go to live their financial
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Brendan (Co-Host)
future yeah it's a good point because when you think about the hurdles that it takes to get through some of this stuff it's like well the bare minimum is you have to be an accredited investor or qualified investor right and that's a tough hurdle for i would say the average retail trader if you want to get excited exposed to some of these massive companies behind the scenes and it's like all right well that's the bare minimum and then it's like you said even if you are that getting your hands on this stuff is still not easy it is that is like it might even be a harder stretch after afterwards not gonna happen it's
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John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
just not gonna happen so yeah yeah
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Brendan (Co-Host)
no i mean you made a great point and so i think the more that we can open up access to these products
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Bryce (Host)
i had a follow up on something you were you were talking about john actually on just like the incumbents very clearly not wanting this technology with perps to to go mainstream i don't know if this was like a clickbait thing or if this was real but i saw that the cme was suing the cftc because the cftc is letting perpetuals is that real and like
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John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
i don't know if you guys are
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Bryce (Host)
a party to that suit can you
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John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
talk about it yeah i can't really talk about the suit because for obvious reasons because we're offering those products but the cme it's public knowledge the cme is suing the cftc that's an unusual situation i was like is this real this sounds too crazy anyway i come from that world i know a lot of those guys i can't really talk about the case itself but i'll just say this in general i said this on cnbc this morning actually i don't it doesn't surprising to me that they would defend the moat i get it i understand right no different from money center banks being upset about stablecoins right if i were getting free money from the government and then turning around and being allowed to charge five percent for people to borrow the money that i got for free i would protect that business as well i would enjoy right or if i was getting paid five percent from the government and i was turning around and giving ten basis points to my checking account holders that's a business i'd fight for as well so none of this is particularly surprising to me i think over time what's best for the american consumer tends to win which is why i think you're seeing these rules coming out whether it's sec interpretive rules or cftc no action letters or hope for the clarity act and the genius act it takes a while it takes longer than people want but eventually we do live in a democracy so we can vote in people who will do what's in our best interest and that seems to be grudging grindingly
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Bryce (Host)
happening yeah on on that same point about it grindingly happening i see the odds of the clarity act passing in twenty twenty six pretty much at a coin flip i checked two days ago it was forty three today forty nine you know in march it was seventy percent and so i'm just curious does coinbase have a firm a firm level view of of where the clarity act stands if it's going to happen this year does it matter for you guys i've heard some folks come on the show and say pass or no pass you know we're still going to be building the business it's still going to you know not yeah i mean not
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John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
have a huge happen let's be clear we want it to happen i know paul gruels are fantastic general counsel and faria shazad is our fantastic head of policy and they're competent confident i just quote their public statements on twitter they think it's going to pass and i'm confident as well people forget genius up until the day up until the week before genius passed it was a coin flip as well there's no guarantees about this so i believe in paul and fariar and they've done a great job and so i believe in what they're saying is right they're much closer to the action than i am but i will say this again coinbase i was asked this question as well what's the big catalyst so i think you have to stop looking for a big catalyst quite frankly so even if clarity passes i think to some degree some of that's been priced in so i don't think we're going to have this massive run up just because clarity passes but you have to be comfortable with the notion of two things one is clarity passing is a fundamental building block of the longer term institutionalization of crypto and blockchain so it can start to fix problems in us capital markets and the economy right you just got to believe in that and i know people want price to go up i do too but it's a very very positive thing if it doesn't which i think it will but if it doesn't we still get to build stablecoins have quadrupled since the passage of the genius act without the clarity act and they will continue to grow because they're good tech payments are improving we're seeing movement in the tokenization of equities that will happen with or without clarity all that will happen is some of this will happen offshore and us citizens won't be able to
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Bryce (Host)
benefit which would not be the ideal scenario i'll tell you that much yeah back to the genius act being a fifty fifty thing up until that week that was the first time when the genius act got passed last year where i actually opened up c span and was like live streaming just the still shot of the senate everybody walking in yay nay and i'm like they're like eating popcorn just like oh my gosh is it going to pass and i was so excited my wife's like what are you watching right now i was like it's the genius you know like that that charlie day you know thing where you're like you know putting all the dots together for it was exciting
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John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
so i got a quick story about that so so last year remember when everyone was talking about debanking yeah of course there was a senate trump was
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Bryce (Host)
talking about it too he called out brian monahan from bank of america so
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John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
there was a senate hearing on debanking and i am on the board of directors of this entity called aima it's the largest industry lobbying group for funds and i was passionate about this so i had aima do or i helped aima do really comprehensive survey work on its member base which is thousands of people and that survey was entered into evidence by one of the witnesses a wonderful guy named austin campbell anyway long story short i got named and he name dropped me one of the senators one of the senators who wasn't too fond of crypto made some comment like is there any evidence of this and he went well actually john d' agostino from ama and coinbase and i'll tell you something people watch c span my phone blew up it is people it's like new york one a local t it's like asmr for people they just watch c span that it's i love
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Brendan (Co-Host)
it yeah it's funny man you just never know you never know what you're going to get yourself into these days but on a lighter note you know coinbase also serves as is really one of the primary custodians for a lot of these etf's we we mentioned that earlier but i was hoping you could expand upon it like why is that right it's more than just saying oh there's a couple of bitcoin spot etf's now now there's a whole lot more than that but coinbase still serves as really the primary custodian when it comes to crypto etf's what does that mean for coinbase and why is that yeah
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Bryce (Host)
i'm also curious about the business model there for you guys too sure yeah
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John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
i mean look i've been involved in many of these rfps one in particular actually in saudi arabia and you know quite frankly speaking to the folks who conducted the rfp you know and i don't like i don't like talking bad about competitors but there is an advantage to being public for as long as we have it's just that simple it's like i kind of liken it to the kenyan marathoners training at ultra high altitude since they're children you compound that training you compound that exposure you compound that difficulty over time and you just produce a more hardened athlete and i think the way to think about coinbase custody is it's a very very hardened athlete and that's a reason why we are i think it's over ninety five percent and the only major etf's that don't choose us have their own custody because i think when you put us up relative to that institutional requirement there's really no competition and there's some things that we can't do as fast as others and whatnot because we have to be highly locked up but those institutions appreciate that conservative nature the business model as you would imagine there's a custodial fee based on base assets that kind of goes down as you step up the number of assets we obviously also want to lend against those assets we offer for example if you want to keep those different products if you want to keep your assets in cold storage for security reasons we can loan you effectively the asset to sell so it doesn't have to move into hot wallets there's bridge financing there's a number of different ways that that business makes money for us and we can help clients but they take a lot of comfort in the fact that we have the most secure custodial solution in the world
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Bryce (Host)
yeah it seems to me at least from from an outsider's perspective looking in that there's never been a serious breach of you know customer assets that and once that trust is is that right
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John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
no there's never been there's never been a breach customer assets of coinbase yeah
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Bryce (Host)
and once that trust is broken it's just so hard to kind of regain it back and so i think that's just one of the other stamp of approvals and it's one of the you know the exchanges that we always sort of tell our folks who watch the show just like hey this is you know state of the art in terms of where you're going to to hold crypto trade crypto and it's just so cool to see you know beyond the security how much you guys are innovating i mean you guys really are rolling out updates like you are a startup but there's already you know what three thousand people that work there at coinbase now so it's really cool to see
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John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
the balance there yeah three thousand or so yeah look i mean they set brian sets very aggressive targets we're told we're launching this thing on x date and i mean he did a podcast where he posted something the other day about the value of setting these close to impossible targets because it is extraordinary how much you can get done if the whole team knows you have no choice but to get it done we are very very close to launching security tokenization both hopefully in the us but definitely ex us shortly we've got perps live and one of our most popular products were commodities perps so gold and crude oil for obvious reasons if you think about a year ago maybe a year or so ago if we had a situation like we have in iran and the us launched a missile or the iranians attacked a ship in the strait of hormuth on friday at six pm you would have to wait until monday morning at nine am for nymex to open now obviously you don't need to do that and so once to your point once that horse is out of the barn i ask people do you think we'll ever go back to watching movies when movie theaters tell us we can there's about the same level of likelihood of that as a trader waiting thirty six to forty eight hours to hedge their exposure and so if you think about kind of where we're going with tokenized equities right so it's not that i think that every single night we'll have the same liquidity we have during the day for the s and p five hundred but once you tokenize the entirety of the s and p five hundred every single night something happens that affects a company an industry a sector and so to have the optionality to go and get liquidity and hedge your exposure overnight that's an extraordinary
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Bryce (Host)
change yeah no that's huge i think about pretty much all of the market moving events i feel like happen after the market closes whether it's earnings or people are doing mergers or reverse mergers and the fda is coming out with announcements for different things it's like none of that happens during market hours i mean even the president was waiting to declare war after the market closed it seems like all the interesting things and i even heard a great stat about like overnight drift basically if you bought every s and p close and sold every open you would outperform that actual returns of the s and p so
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John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
price that's a big unlock because it does the price doesn't actually stop you just can't see it right so i remember we're at nine max every time the price of crude oil natural gas or something would spike sometimes we get protesters outside like literal protesters saying shut down the exchange and i remember one this was during yeah this is during occupy during occupy wall street i walked around and i started talking to some of the people and i was like look we could maybe you'll be successful maybe you'll close down the exchange i don't know but you understand that the only thing you'll be doing is hiding the truth from yourself because when the market opens tomorrow or let's say you shut this whole thing down it never opens again you're going to have horrific pricing because you'll be able to get robbed by everyone because there's no pricing benchmark so blaming the exchanges is i get it from a gut emotional perspective because it's the thing telling you how the price is going up and you feel bad about that i get that but all you're doing is denying yourself the information you need to make a
- [35:09]
Bryce (Host)
decision ignorance is bliss as they say but you don't want to be living in ignorance i'll tell you that much now look i i've got a i want to a little gear shift here for us i feel like we you know have to talk about the volatility we've seen in the crypto markets as of really twenty twenty six i think bitcoin's down more than thirty percent year to date ethereum's down call it fifty percent or something around there but i have seen again been watching some of the cnbc episodes that you've been on and you've been vocal at family offices sovereign wealth funds are actually on the bid they are buying during this drawdown so i'm curious during all of this extreme fear a lot of this question about you know the bitcoin bear market now everybody's like well how long is this going to last from your vantage point what are you seeing yeah so from the smart money i've been i've
- [36:06]
John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
been super lucky in my life i've worked with some of the best investors both literally some of the best investors i worked around them with them you know john arnold from centaurus taka spraguez from alkyon just really extraordinary people and the one thing i've learned is it will the short answer to your question of how long can it last it can last twice as long as you think it can in both directions on the upside and the downside so what i see happening right now and so the question that everybody has is well if they're buying if they are buying if institutions are buying why is the price falling and again i understand the nature of that question that's a fair question especially if you just don't have a lot of experience with markets the reason is that while i would love it if institutions would ride in on their white horse and prop up the price of everything they like that's not how they think if anything they trade on momentum and so they're interested in getting the best price over time so if they see weakness they are not going to stop that weakness they are going to if anything they might accelerate the weakness they might go short for a while before they pick up their long and this isn't like the conspiracy theory market manipulation nonsense this is not that this is rational behavior they're going to watch the market they're going to participate on the long and the short side they don't get emotional about an asset they're not only long an asset so the institutions are not your friends necessarily during these periods however they dramatically accelerate price increases because they follow momentum so they help you on the way up so what i can tell you is they're closely examining this asset class this asset class is behaving exactly as it has for fifteen years this is the sixth or seventh cycle where we've hit new higher bottoms then they rally to higher tops and so if you're an institution that's done the work an asset behaving exactly how it's behaved in the past is not scary grainger knows
- [38:09]
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knows when you're a procurement manager for an office park you're not managing one building you're managing all of them and to stay ahead you need to see through walls and around corners lights about to fail filters ready to clog h vac on its last leg if you wait until something breaks you're already behind count on grainger for quality products easy reordering and twenty four seven support call one eight hundred grainger click grainger dot com or just stop by grainger for the ones who get it done you
- [40:08]
Brendan (Co-Host)
know on a similar note is there a a divergence between what's happening with retail and institutional players there's got to
- [40:17]
John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
be certainly from a sentiment perspective there's no no question i think sentiment's about as low as it's been on the retail side and i wouldn't say sentiment's high or low on the institutional side they're just plotting through the math so you know they're they're just they're acting like they're supposed to act as good fiduciaries and again i'm talking about not the ones that are conduits for retail like the etf providers i'm talking about the asset owners and the funds you
- [40:48]
Brendan (Co-Host)
have to think that they have a longer term more patient vision of all of this whereas i would imagine retail is a little bit more short term focused probably a little bit more emotional probably a little bit less patient maybe more easily influenced is that accurate i
- [41:07]
John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
think for the asset owners certainly they can have ten twenty fifty year visions if you're a sovereign wealth fund you're thinking in terms of decades i think for the hedge funds they can be more patient than retail for sure and they certainly don't get emotional they'll double triple quadruple down but they have to worry about quarterly reporting and they have to worry about year end year end so they're not i wouldn't say the most patient affects capital but what they're going to do is size it correctly based on momentum whereas i think some people especially when they use leverage they get over their ski tips a bit it never feels too big a position when it's going up people don't think about that when it's going up they only think about it when it's going down hedge funds professional investors tend to size it properly whether it's going up or going down yeah it's a fair
- [41:57]
Bryce (Host)
point you know one of the things that you know i've heard discussed and had my own thoughts about is one of the reasons for kind of an accelerated descent in crypto over the course of the past nine months or so is because of the accelerated ascent of ai and of several of these other you know adjacent technologies to ai like the data center build out and you know all of these hard assets and everybody is talking about nuclear energy and robotics and it feels like when we all started investing in crypto you know again almost a decade ago there wasn't that it was you know zero percent interest rates there wasn't that much you know interesting technology that was really in the public equities market i feel maybe that's just my memory but now it's like man there are so many really other interesting areas to invest in even in my own personal brokerage account i'm like okay well you know i'm pretty loaded up on crypto maybe i'm going to try some robotic stuff maybe i'm going to deep dive on the ai semiconductor stuff and that has been potentially and again i want to get your opinion on this is is that a liquidity suck or an attention sucker everything from crypto which used to be where all of the tech visionaries were sort of pointing towards and maybe that'll come
- [43:15]
John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
back yeah absolutely there's no question i mean ai investment has been just astronomical it's been unlike anything we've ever seen from a capex perspective to a liquidity perspective so there's no question that that's playing a role prediction market interest is playing a role again i think that's why coinbase strategy is to be the everything app right so we have prediction markets we have pre ipo markets we have tokenized securities markets for some of those names you're talking about i think like the internet itself financial services will become to some degree about the attention economy and we have to make ourselves the one stop shop for all things in your financial health so i agree i think that all things mean revert i don't mean to say i think there's going to be a massive correction in ai stocks anytime soon but attention certainly mean reverts so you know we just have to build when people are looking the other way and we have to offer these products that get their attention onto our platform and then let them make the decision which of those products is right for them yeah no
- [44:23]
Bryce (Host)
i think yeah it's a great sort of synopsis of what i was trying to explain in my own feelings and i think you kind of hit the hammer on the head one of the other things that i want your thoughts on is like you know you know crypto used to be or bitcoin particularly you used to really be this digital gold thesis right when the government is overspending and irresponsible and misdirecting capital you know crypto and bitcoin is this alternative asset that's really outside of the purview of government and people could rush into crypto when you know they're they're having policy errors and all that kind of stuff do you feel like the digital gold thesis is still intact do you view it more as like you know i've heard other people say oh crypto's down because the software stocks is down right software stocks are down because ai now makes anybody who with you know a brain and a twenty subscription currently the ability to create their own software and so so where do you kind of stand on on the high level understanding of like where or should i say what is bitcoin
- [45:33]
John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
so i got to start with a quick little story that's how i explain things i love stories so when i was at the nymex there was a lot of back in the day commodity hedge funds were crypto funds before crypto funds meaning they were the hot new darling on the street they were making just outlandish outsized returns and we would talk to them and the earlier ones the first tranche of them went around telling everyone hey look the great thing about investing in commodities is it's zero to negatively correlated with equities and fixed income and they all got wiped out and they all got sued and then the next tranche of commodity funds came in and i sat down with them and said okay just don't say that because here's the big dirty secret when people panic all correlations go to one that's just a reality it's a reality of us as a species the nine or ten quant trading firms in chicago that control sixty percent of all order flow in the world those algorithms are written by the same one hundred fifty programmers so we are a panicky species that when things go bad we tend to all do the same thing and so i think bitcoin i do believe in bitcoin as the digital gold thesis i think it's more powerful than digital gold because i think the new modern commodity is compute and power and that's what bitcoin creates a ledger for that's what it stores if you will so i think it stands alongside gold in a complementary fashion not in a competitive fashion gold has had problems over the years gold has not behaved the way you want it to behave at many many points in time the beginning of the great financial crisis et cetera et cetera so the fact that bitcoin is not behaving the way we want it to is not a function or a failure of bitcoin it is largely a function of failure of us as investors we are not the most thoughtful investors in short periods of time over longer periods of time that comes out i do think that it serves its purpose every forty or fifty years as a society we create a new store of value the notion that we haven't created a digital one up until now is kind of silly given we've been as a world for the last thirty or some odd years i think bitcoin is that store of value i think it's reached that tipping point of critical mass where the cost to unwind it exceeds the cost to continue it i see it continuing to find not everyone's going to want it in their portfolio and that's okay you're not dumb or luddite if you don't want this particular asset versus that but it is now firmly established as an option with very very unique characteristics so i get it we want these things to behave the way we want them to but that's not a function of the asset that's a function of us
- [48:43]
Bryce (Host)
as a market yeah also on that point about the correlation stuff sorry to interrupt brendan one random thing is i noticed the one year sort of rolling correlation between bitcoin and s and p five hundred is at an all time low and so we've got typically a a really correlate highly correlated sort of view of you know if crypto goes up and stocks are going up they're going to go up and down together but that hasn't really been the case this year so it kind of makes it maybe more attractive for an institution to look at and say like hey like you know we're going to have stocks and we're actually going to get like a non correlated asset in bitcoin because it just hasn't had that tight of a correlation
- [49:30]
Brendan (Co-Host)
yeah well you know mine was a little bit off that that that path but i think it's a good point because people have been watching that bryce right i think people have been watching the movements of crypto here really over the last you know you could say the end of last year but really this year right because everything came down with a lot of the geopolitical news and all these other uncertainties that we've kind of seen thrown our way but on the recovery you've seen this extremely sharp recovery in tech you obviously had metals melt up to the upside in that historic run you saw tech kind of go on this massive recovery to new all time highs most equities kind of did that as well energy surged up to these record levels and then you had crypto which right now we're basically sitting at cycle lows here for the last year or two for a lot of these assets and so i think people are looking at that bryce and it's a good point and i think the idea of it being somewhat uncorrelated people look at that and they go oh that's a bad thing everything else is doing good and it's not but you're right i think it just helps people look at it in a different way and it really is its own asset class now i mean you've looked at it evolve into a multi trillion dollar asset class and i think it is honestly best that it does behave in its own sort of way but i want to
- [50:43]
John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
yeah silver's down silver's down by fifty percent crude oil crude oil is also
- [50:48]
Brendan (Co-Host)
down by
- [50:50]
John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
the iranians shot at a tanker less than seventy two hours ago and crude oil is still trading under eighty last time i checked so look you've got to be prepared i'll quote jeremy grantham ironically given what he just did on cnbc i've devoured his letters over the years and he's got some great lines and he says markets can be gloriously inefficient and he says and they can go against you until you lose your heart and your mind and the trick is to be persistent and to survive so this was never going to be i mean i feel sympathy for folks who watched bitcoin's early days and did some basic linear interpolation and said oh it's going to keep growing at ten thousand percent per year forever things can't grow that fast they can't compound larger than the global economy pretty soon so it's not linear interpolative it's a sine curve but it's a sine curve that increases over time we've got more adoption coming what i tell people who say what's the catalyst my new thing is that i'm lucky enough to work at coinbase so i get to see what i call micro catalysts on almost a weekly basis new clients new sovereigns new nation states new products we're offering the prime offering we now have a so we never really had that in this industry we now have a prime brokerage offering that is equivalent to the prime brokerage offering that exists for equities and credit that allows for thousands and thousands of new institutional clients to engage with this asset class in the way that they know how it's a
- [52:33]
Brendan (Co-Host)
good point and kind of realigning us with what institutions are thinking and what the institutional side is doing here like how is the institutional allocation shifting just beyond bitcoin and ethereum because i think that's the popular thing everyone always brings it up people probably see a million clips about it but beyond the big two beyond bitcoin and ethereum is there and if so how is that institutional allocation kind of shifting beyond so that's
- [53:04]
John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
a great question because it's the boring stuff that builds a great business right so we we have you know over a billion dollars out on the lending side we're looking to grow that substantially this is very very high quality credit at great rates so there's a massive institutional credit component that's growing very fast as i mentioned our perps market for commodities and pre ipo equities is growing very very fast that's a very very exciting place for funds to play because if your job is to find alpha and if you're limited i forget how many stocks are on the new york stock exchange i think it's less than three thousand if you open up a new array of potential liquid to semi liquid security type instruments you're creating new sources of alpha for these funds that have been starved for alpha for a very long time the reality is seventy five percent or more funds funds don't beat the s and p five hundred that's down a lot from previous years we're offering these institutions through lending products through alternative equity type exposure alternative commodity type exposure we're offering them new ways to gain alpha and we're getting them to do it all or mostly on chain and eventually all on chain which just makes everyone's life a hell of a lot easier so institutions they're hungry for new types of exposure and they really haven't gotten that over the last twenty years so this is a learning curve for them but this is what
- [54:40]
Bryce (Host)
we're offering i love it look john i mean we greatly appreciate the time that we've spent with you and to kind of round out the discussion i want to ask the question that's probably burning and all the listeners hearts and wallets is what's it going to take to kick this bear market in the groin and and finally slap the bull on the butt and get it moving in the right direction is it gonna be a slow sort of you know we got us have a slow bottoming process is there something in the technicals that you guys are looking for again you're just your personal opinion is it that landmark regulation is it a big name starting to buy crypto how do you kind of think about this i'm
- [55:25]
John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
sorry to be boring here but again i had the luxury of learning from some of the best in the world and one of the best equity tech investors of all time i already said his name i won't say it again he's very private his first rule is that he runs a forty billion dollars tech fund with an outstanding track record i worked for him for several years and his first had three rules and one of them was don't try to market time so the only thing that's going to get out of this bear market is time and if you're committed figure out what you're willing to allocate slice it up and dollar cost average in because you will be happier a year two years five years from now as everyone has been when they've bought into high quality assets during bear market periods now i want to give you a more honest answer even though i was a little bit sanguine about it before i do think clarity passing is important i do think that it i don't think by itself i don't think people who have the interest and willingness to buy crypto now are waiting until post clarity to buy but it does accelerate the onboarding of a lot of large institutions and increased capacity so i think that clarity again maybe not immediately following clarity but it does make the industry healthier over time and then that's about it i think you just have to you have to just be you have to believe in the asset class and you can see from our reports and from what we put out we are very very excited about the state of the industry and time that's the
- [56:58]
Bryce (Host)
only answer awesome well i'm not going to let you go something you just said about clarity made me kind of spark my imagination there which is like kind of again this will be the last question but the the clarity act like why does a bank or why do some of these large fiduciaries you know why are they waiting for the clarity act why do they need that designation of like this is for sure a security this is for sure a commodity and once we have those you know regulators who were responsible to report to then we could jump in why
- [57:34]
John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
is that so necessary look we have to be honest with ourselves about our industry our industry is still small crypto overall crypto just as an investable asset class blockchain's eating the world there's no question solving massive problems integrated into ledgers all around but crypto as an investable asset class is still small it still represents two point five percent to four percent of global equities real estate fixed income so if you're a massive organization you get it philosophically you've got younger employees chomping at the bit to invest in these assets you've got some subsection of your customer base that's calling and saying hey we'd love for you to do it so crypto is punched above its weight to some degree in a very real way given the size of the asset class overall the fact that we have blackrock and fidelity and schwab and all these folks in it is and the fact that amazon is accepting crypto payments this is an extraordinary testament to the value of technology but these institutions have to make roi positive decisions so they're looking at the size of the asset relative to the rest of their business and they're saying okay we get it philosophically we like the young partner that is excited about it and we're going to let him or her run with it but to make that capital investment in a fiduciary way especially for a public company they have to be able to tick all the boxes off of the major things that could go wrong one of the biggest things for these institutions is regulatory clarity so it's a new asset class they're looking for some type of guide to it we've got some of that ingenious which is why stablecoin usage has exploded and you don't you don't hear institutions arguing about whether or not they can get into stablecoins because they have genius so clarity provides that security net needed to justify the decision to invest in a small but growing industry it's not unreasonable it really isn't
- [59:28]
Bryce (Host)
they're playing not to lose at the end of the day and one of the ways that they could lose is by tripping afoul of securities law or something i guess i
- [59:38]
John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
get it again i'm sympathetic i'm not in that position but i'm sympathetic to that position so i think market structure also the fact that we're considering passing market structure for this asset class is also testament to how important this asset class is we don't pass market structure very often in this country generally we pass it to fix a massive problem when there's been some massive financial crisis and so the fact that we're looking to create proactive market infrastructure regulatory infrastructure for an asset class that again represents less than five percent of equities is extraordinary and we should be proud of
- [60:15]
Bryce (Host)
that yeah absolutely mister john d' agostino thank you so much for coming on head of coinbase's institutional strategy where could people follow along on your personal journey as well as of course coinbase's journey
- [60:31]
John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
well we have our coinbase institutional at coinbase institutional on on x i'm at john j d' agostino very very cool name i made up and and obviously the coinbase tag on twitter we put a lot of great stuff we put out our research notes and i'm pretty reachable so any if any of you want to reach out to me i'm pretty i'm pretty easy to find on
- [60:55]
Bryce (Host)
linkedin or twitter awesome thank you so much for your time and everybody who is watching or listening today we really appreciate your support and your interest come back same time same same place next week we'll have some more great guests for you thank you john we'll talk
- [61:11]
John D'Agostino (Guest, Head of Coinbase Institutional Strategy)
to you soon bye everyone thank you i cashed out my entire four hundred one k thinking someone stole my identity
- [61:28]
Brendan (Co-Host)
a fake email cost me my dream home after i sent my personal information
- [61:31]
Sponsor Voice
to a scammer my ai agent wired thousands to an account i'd never seen
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com businesscredit grainger knows when you're a procurement manager for an office park you're not managing one building you're managing all of them and to stay ahead you need to see through walls and around corners lights about to fail filters ready to clog h vac on its last leg if you wait until something breaks you're already behind count on grainger for quality products easy reordering and twenty four seven support call one eight hundred grainger click grainger dot com or just stop by grainger for the ones who get it