← CRYPTO 101
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- [00:00]
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Foreign.
- [00:10]
Bryce Paul
Everybody. Welcome back to the Crypto 101 podcast. I'm your co host, Bryce Paul, as always, joined by my good Floridian homie, Mr. Brennan Veeman. How are you doing? Are you dodging some of that crazy weather, Bryce?
- [00:23]
Brennan Veeman
I am dodging some of the crazy weather. It was snowing. We were talking about this before this. It was snowing in Florida, all over Florida this week. And you know, we're kind of continuing that theme because at the time of recording this, there's all sorts of crazy storms happening in the market. But I'll tell you what, the crypto market isn't too concerned about this stuff. When we look back a year from now, five years from now, we're going to forgot that this even happened. So I'm doing great, I'm surviving.
- [00:50]
Bryce Paul
I think this is just going to be another blip. That's what every correction sort of in that long term bull market eventually looks like. When you zoom out, whether you're looking at, you know, the stock market over the history of, you know, 50 years and what we think is, you know, going to be the history of crypto over the course of 50 years, you know, we think it's going to be up into the right. And so these are good opportunities when there's volatility to capitalize on. And that's just our opinion. And before we bring on our guest, as we always kind of disclose and disclaim that nothing that we ever say here on the show is financial advice and nothing that our guest says is any representation of, of anything other than just their opinion. And it's certainly not to be construed as investment advice. And so kind of with that being understood and with us having a lot to discuss today, we're going to bring on our super spectacular guest today, Andy Bear. Like the market. Andy Bear, who's the head of product and research from Coindesk Indices, making a big statement here in the industry. Andy Bear, how are you doing today?
- [01:48]
Andy Bear
I'm great. It's a great day to be talking to you both. There's a, it's not one of these slow news days in the industry. We're in the market. So this is, makes, makes our jobs easier.
- [01:57]
Bryce Paul
100% man. We're so excited to have an industry vet like you join us. And not only are you an industry vet of, you know, crypto, been around the block here in crypto, but you're an industry vet of Wall street in general, the financial markets. So before we dive into what you're building on now here in crypto, kind of take us in a time machine back to the start of Andy Bear's career here in the. The world of finance and innovation.
- [02:22]
Andy Bear
It started, you know, pretty humbly, right. I was in my first year of business school and all the, you know, kind of companies came in for corporate recruiting to see where people's summer internships were going to be. And I think it was a Merrill lynch table where they had like two signs, equity and fixed income. And I kind of went to the equity table because I didn't like the idea of selling stocks to people on a fixed income. I just had. I had no idea what anything meant. In my second year of business school, though, actually after that summer, I just drove a motorcycle around country, so I still hadn't really gotten the assignment yet. Second year of business school, I took an options course and that was it. I was done. I wanted to be in the options market and started the next year at a French bank, which was really plugged into the structured products market, which taught me a lot about how exotic options work and risk. And then at a number of different places, really kind of learned about bull markets and learned about crashing markets and turbulent markets and what happens institutionally, what happens globally, you know, what happens when central banks and other governments have to come and kind of come in and help make sure things keep, you know, the lights stay on. So it's. It was a fantastic time to learn about options. There was a lot more quant and PhDs entering the space. And so it just became a really, really rich environment to do everything from listed options to risk arbitrage to structured products to insurance products, annuities, institutional investment, and, you know, just, just a great, great, great space, great way to learn. And, you know, working on trading floors every day keeps you humble and hungry at the same time.
- [04:07]
Bryce Paul
Were you in the pit?
- [04:09]
Andy Bear
I was upstairs, upstairs at, at the French banks, at BNP for several years, at Bankers Trust, at Morgan Stanley, at Credit Suisse, and just saw those kind of different environments in New York and in London, saw how those markets operated differently and, you know, really gained a sense of, of what, what the financial markets in the United States, what they mean and how important they are, how much liquidity flows through, how connected they are with regulators and the banking side of the world. And then how everything works in Europe, which is kind of like, you know, a photocopy sometimes, but other times it acts very differently. So it really gives you a sense when you think about macro, when you think about investments and regulations and structure and Things like collateral management and risk management and statutory capital, you just pick up these things over time. And so when you look at the digital asset industry and you realize it's a raw piece of land out in the middle of the desert, what are you going to do to build the right kind of structure there so that the same mistakes don't get made again?
- [05:20]
Bryce Paul
Yeah, no, that's awesome. And, and actually I've got, I've got a question. We don't, we don't get a lot of people who have such a rich trading experience on the show. You know, we got lots of builders, lots of really smart people in other capacities, but somebody who has such a rich trading experience. So I kind of want to ask you a question of, kind of, if I had a, you know, one question to ask a trader, what would it be? Kind of thing. And Brendan, I want you to think of the same question as I ask mine. But it just kind of popped in my head and I think you're the perfect guy to ask this question to. It's, it's what drives the price of any given asset? And the follow on, is that the same in digital assets? And yeah, I guess the answer, yeah, I'll leave it there. It's not going to be a loaded question. What drives the prices? And is that the same.
- [06:04]
Andy Bear
Think about this every day. And it's, you know, sometimes we're, let's talk about meme coins, which I know is very topical this couple of weeks and certainly people say what drives the price of meme coins? And that's an interesting example because there you have a complete absence of underpinning, I guess, asset based value. You just have trading. Basically a lot of people think that that's not real trading. I think it's real trading for sure. So that's on one end of the spectrum. On the other end of the spectrum you have things where, things, I guess trade very, very closely and in a very narrow range around some kind of intrinsic value. You know, and the reason that these things might need to trade is because you need to move a lot of them around. And you know, you have one institution that moves, needs to move something to another institution on the other end. Here you just have pure speculation. You can't, you can't get away from the behavioral side of trading. You know, I, every once in a while I'll go back to that great Wikipedia page that has all the behavioral biases that, you know, that affect how we think about things when we think we know too much or our loss aversion. Tells us to do the wrong thing or we have confirmation bias as to, you know, recent events. I'm a strong believer that momentum has a lot to do with trading. If you look at how the digital asset business and markets operated last year, we had two quarters of fantastic, undeniable momentum right between January 11 and March 13 and then between September 18 and December 18, between those two Fed meetings, you couldn't, you felt good. Everybody felt good.
- [07:47]
Bryce Paul
It was like shooting fish in a barrel.
- [07:49]
Andy Bear
Yeah, it was, it was, it seemed easy, right? And it seemed like, you know, nothing, nothing was ever gonna, the party was never going to stop. So I think traders have to care about momentum. They have to, it's, you know, there has to be a poker game element. Who am I trading against? There has to be a don't fight the Fed kind of sense of, you know, you're big but you're not mother Nature. So, you know, keep, keep perspective in mind and liquidity is the last big thing. You know, I've seen events where, where firms get tapped out. I remember when long term capital blew up and the reverberations around then, and that was just about, you know, what they just ran out of, of liquidity. And then things really started to crack and grow. So I know that's a long answer, it's a very deep question, but liquidity, I guess trading skill, behavioral biases, markets, sentiment and momentum have always been, I guess those are the things that never go away. And then cycles, you're going to have cycles that are terrible and they feel like everything's going to break and never get better. And you have cycles when it feels like nothing can go wrong. When you feel strongly either way, that usually means things are going to turn at some point. So that's. Timing's hard, but you kind of know when you're having your worst day or your best day and just be aware that things will mean revert to some state.
- [09:18]
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- [10:24]
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- [11:22]
Brennan Veeman
Yeah, I think that's well said. I mean, there's a lot of factors that go into the market and Bryce, I was thinking on that same and the things that came to my mind as I was writing this stuff down is, you know, there's supply and demand at the end of the day, right? That's the big driving force. But how that gets dispersed and what affects supply and demand can vary. I mean, you can have things from simple speculation, good and bad. You know, right now we're seeing a little bit of bad speculation, but just before that we are seeing good speculation. The speculation of a bitcoin strategic reserve, the speculation of the domino effect that that could have. The speculation that countries and companies and more retail investors could could adopt something like Bitcoin because of that. So you can have good and bad speculation. I think that the thing that goes hand in hand with speculation is adoption, right? We also have adoption. How is Bitcoin being adopted? How is it being used? And then I think the final criteria that that comes to my mind is use case. You know, what is the use case? And that varies. And use case is a really broad term because the use case can be as simple as, hey, this is fun relief for me and my friends to be a part of something. And I think that's what you see with meme coins and that's why find it so intriguing is because it doesn't always have to be this complex solution that solves the next stage of banking. Sometimes people want to come in, they want to turn their brain off, they want to do something fun, they want to bond with others and that ultimately drives people together. The larger the community gets, the more people see that it has value. And that's where we get a lot of, of this meme coin hype.
- [12:52]
Andy Bear
Yeah.
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Bryce Paul
And I think, yeah, it's a good point. It's a great point. And like, it just made me think of like video games. Like when, when video games first started coming out, everybody's like, well this is just rotting people's brains. And what GDP does this add? This is just a time suck and you know, a productivity suck, all that kind of stuff. And then it ends up that, you know, there's whole, you know, worlds and you know, economies that sprung out of, you know, the gaming industry. It's you know, multi hundred billion dollar industry and contributes a lot to GDP and stuff. And you know, gambling, for better or for worse, I know some people think it's an inherent vice that, you know, should never be allowed. And some people are like, hey, it's freedom, you could do whatever. So for better or for worse, you know, gambling is also something that people have done since the dawn of time. Like, you know, and so this is just like 21st century gambling, like in some venues in some respects and stuff like that with, with the meme coins. But it is happy to give it.
- [13:46]
Andy Bear
More credibility than that. I think. You know, gambling, gambling, I think, you know, you have a house which has, which defines the odds. I think meme coins in a way have become this, this kind of, in a way a mechanism for capital raising. Right. With an uncertain end, but with a certain group of people. I mean think about blank check companies that are listed on the New York Stock Exchange. It's kind of like, well, we know these people, we don't know what they're going to do with this capital, but we trust they're going to do something interesting. So. And then there's this element of liquidity again and this element of who am I trading against? If is this, is there momentum here? Are we all going to put our hands together and keep bidding this thing up? I think there are some market dynamics in there that anti meme Coin people feel is, is frivolous beyond the point of being real. That's my pushback. It's definitely real. And if you take the NFT craze from a couple of years ago and say, hang on a second, rather than just having millions and millions of individual tokens, let's make them fungible, but let's create the same idea of we're going to pursue this as a community and decide to give it value and decide to trade. And as long as I buy at, you know, X and I sell at X + something, then I've done my bit. To deny that that's how people think when they're trading is just, you know, I don't know, I think it's too much attachment to the past. I like to talk to people who, who really are anti, anti meme coin trading saying that it's, it's a brain rot and say, okay, so what's a PE ratio with stocks? Right? What's it, what's, what's what we call multiple expansion. That just means the market's paying more for PE than before. Okay, so part of that is macro based, but part of that is just now people feel like paying more for stocks has nothing to do with their intrinsic value, it's just sentiment driven. Strip out the name of a stock or the security underneath it and take the pure trading instinct. And meme coins do that pretty well, declaring like undeniably that it's fun, right? They're not, they're not, they're not, I guess rugging when it comes to intent, they're just saying, nope, this is fun, go trade it. And people love it. So people are going to do it. I think the trading is legitimate. The market structure that permits trading at the kind of scale we saw on the weekend before January 20th is just fascinating. And then for other folks, well, even if you don't like meme coins, they have to settle to a blockchain. And if there's more trading, that blockchain fee, those blockchain fees have to get paid. So if you want to just feed off of it that way, then, then, you know, go ahead.
- [16:35]
Bryce Paul
Yeah, more, more power to you, right?
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Andy Bear
Yeah, that's right. Yeah. If you don't, if you don't like mean coins, well, somebody does. And maybe you should just buy some Solana, right, because. Yeah, because that's where the fees are going.
- [16:46]
Bryce Paul
Totally. No, I mean, I know our listeners, people who listen regularly for the past couple years will know Brendan and I both kind of came to Jesus on the, the Meme Coins. Over the course of the last, I would say 18 months, I think I kind of got on, you know, started opening up to it maybe 18 months ago, bought my first meme coin about 12 months ago and then saw my, saw my big gains in Q4 and I was like, okay, now I get it. And I think Brendan had a couple big kills as well. Things that, you know, finally resonated. And so, you know, we went from staunch, sort of, this is, you know, ruining our space to all right, we kind of get it. So we've had that whole, whole sort of transition. And like you said, you know, there's going to be a lot of different ways that blockchains are sort of adopted, right? Whether that's through gaming and Meme coins, whether that's through defi and rwas financialized assets, we're seeing a lot of really cool stuff with, you know, deep in decentralized physical infrastructure and having new wireless networks and things of that nature that are set up by, you know, peer to peer. And it's awesome. And so I guess my question to you is, you know, where do you find, you know, 12 months in advance, you know, by the end of the year we'll just say, like, where is the puck going? Where. Where do you see the most adoption that is really the most impactful in the industry?
- [18:09]
Andy Bear
I mean, part of this is why I love working for an index company. Because first of all, we can do business and talk to just about anybody, right? We're talking to exchanges, we're talking to hedge funds, we're talking to fun other fund companies, ETF companies, so we can add value and add kind of rigor to just about any trading or investment process. And I think back to your earlier point about adoption, our number one thing is how do we get more people into a space where they can participate? The answer to your question is we don't think anybody knows, right? And so we adopt an indexing approach that lets people have access to the space in a portfolio or I guess in weights that we think gives them the right kind of diversification profile and says, this is your chance, you know, if you barely understand Bitcoin and maybe have a kind of a sense of, of, of what a layer one blockchain is. You don't really know if it's going to be sui or if it's going to be, you know, avalanche or if it's going to, or if render is going to take off or if chainlink is going to, or, you know, is it going to be uniswap or the Solana Dex is going to come out on top. So our most popular product, the CoinDesk 20 index, just gives you access to all. And I think a demonstration of how successful that is is the top performers last year in 2024 were like ripple and Stellar. Like, where did that come from?
- [19:43]
Bryce Paul
Right.
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Andy Bear
Nobody's bingo card had Ripple and Stellar being in the first and second spots. So we think that for new investors, timing, timing and security selection are so hard in a fast moving space. Totally. But the whole asset class, you know, has so much growth that that's where you should be.
- [20:01]
Bryce Paul
And, and so the, the CoinDesk 20, you know, this, this is like, you know, you bet the market you kind of sat, you know, it's almost like the S&P 500, but instead of the S&P 500, it's the, you know, top 20 coins by market cap that you guys kind of go through a filtration process and people can kind of get exposure to that. Are, are, where's this traded? Like if, if a hedge fund wants to go, if a person at home is listening, who's just a mom and pop has got their Charles Schwab account, Fidelity, where do we buy the CoinDesk 20 index?
- [20:29]
Andy Bear
Yeah, and I want to, I want to make one, I, I guess alternative interpretation. You said s P500. And we, we would love to be compared with something so successful. But our approach was really more like QQQ. Right. 25 years ago, the, you know, NASDAQ names by size 75 to 100 were not very liquid. So a bunch of people got together and say, let's create this NASDAQ 100 index. And we'll have an ETF, one of the first ETFs, and we'll have investment banks and hedge funds kind of just trade it all day. And that will help kind of yank around all 100 Nasdaq names and create liquidity. Right. I sat next to the ETF trader at Deutsche bank and this is when there were like two ETFs. It was spiders and Qs. And he would stand up, big guy, like big football player guy, and he would, you know, lock the market in 100,000 queues. He'd say, like, I'll buy or sell at the same price just for commission, just to create liquidity.
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Bryce Paul
Oh, wow.
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Andy Bear
And that was fantastically successful. Right. Nasdaq 100 wasn't mentioned on TV ever. Right. People mentioned the Nasdaq Composite, not the 100. Not a very clever index. Rebalances once a Year excluded financials, no listed companies, only OTC names. Right. And you know it, it kind of as an index just did what it had to do to create liquidity. Now there's a half a trillion dollars of money chasing it. There's option markets, spot futures, everything. But it started with liquidity, not with an investment idea. When we launched CoinDesk 20 shortly after we were acquired by Bullish Exchange, which is great regulated crypto exchange for institutions. The idea was, you know, the CEO Tom Farley came over to us and said I want to have a perpetual contract on an index, the first one. So we built this index built about around liquidity and around diversification. And they launched the perp just over a year ago, a year and a week. So far it's traded $13 billion of volume, about a billion a month. Like nothing before. It just took off and the phone started ringing, right. So this approach of trying to start with liquidity rather than trying to, you know, seed a fund and launch it and try to raise assets. Crypto loves to trade. It doesn't always like to invest, right? So getting this thing into the trading infrastructure, hedge funds, structured product dealers, investment managers, market makers, they started to trade it and they also started to use it. Index arbitrage started. It really started to contribute to the, to the liquidity profile of the tokens. So now we're at a space where there will be exchange traded products on CoinDesk 20 in Europe in the coming weeks. There are already private funds all over the world. 3 IQ has launched global funds in Canada, the United States, Switzerland. We have structured products listed by Marex. We have a reg defund listed by Hash Note. We have structured products all through Asia. The part that additionally gets me excited is that the OTC shops, right, the Falcon X's of the world, the block fills the GSRs. They're already trading options on the end, you know, you know me, right? I got into this whole thing for options. They're trading options on it between hedge funds and the dealers. So I, you know, do I have to demonstrate or prove that this index is going to outperform or is it going to be the best combination of tokens? It has a methodology, but guess what? It's going to be the most liquid always. And that's going to make it the choice. So I would take the Q. Q. Q. Victory as, as this kind of demonstration that we were off to the right path.
- [24:20]
Bryce Paul
The perfect example of follow the money.
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Andy Bear
Follow the money. That's right, follow the trade. If you see, like our colleagues that we just acquired CC data and they, and they reminded us that in November, $10 trillion traded in crypto in November and then 11 trillion in December. These are two record numbers. Right. I would rather get into that, you know, be invited to that party than say, okay, here's a fund, see if you can raise 50, $50 million. And there's just so much trading and most of the professional option and Delta one traders that I knew on the traditional side who have moved into crypto, they love index derivatives. And so it's just, we know we're down a path where there's just so much fuel to keep this thing, you know, burning stronger and stronger.
- [25:10]
Bryce Paul
Yeah, there's a big pot of gold there at the end of the rainbow.
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Andy Bear
Absolutely. Yeah. Yep. So, so in the U.S. you know, as we know, I, things are, things are likely to get easier after the change in the administration. So we have conversations with a bunch of different exchanges and fund companies and ETF issuers to think about the best way to get CoinDesk 20 available in a, in a very convenient listed form and in a tradable form right now, Bullish exchange lists, perps, many market makers can make the basket and we have these fun products and structured products. But it's going to be the year when, when we can get this index into many more people's hands. And they should think of it like you could, like, I don't want to pick the names. These are the names that trade, therefore these are the names I want to own.
- [26:03]
Brennan Veeman
Do you think that the growth of these crypto index funds are going to make the market more top heavy? Because you talked about the kind of liquidity contribution that this has, where these assets are being traded more and more and more. Would that just incentivize people to just trade the assets within these maybe few.
- [26:21]
Andy Bear
Indices and yeah, it's a great point and I'll, I think I can actually help you demonstrate that. We, so last week we launched another index called Coindesk 80. Coindesk 80 goes 21 through 100. Right. And. Right. So would you think on the one hand, would that outperform or underperform the 20? Well, there's a lot of names in there. They ended up in the index. They might. So let's just, let's just do the numbers. They both, we, so we back, we made them, gave them the same base date and the same base number. Right. So they were both worth a thousand in October of 2022. And so you can compare their numbers now to see how they've done since then. So CoinDesk 80 is around 1300 right now, right? CoinDesk 20 is almost 4000.
- [27:13]
Bryce Paul
Wow.
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Andy Bear
So if you think like the mag 7 of equities, the mag 20 of crypto is just as powerful performance wise, since then, liquidity wise, same story. Now, do we end up in a situation where that makes mid caps and smaller caps even more challenging to trade? Maybe. But guess what? CoinDesk 80 now has perps on bullish too. So if we list index derivatives there, we hope to enhance liquidity.
- [27:42]
Bryce Paul
Can any hedge fund on board with bullish exchange or most 10?
- [27:47]
Andy Bear
Yeah, most can and more and more will be able to. So they, a lot of the early users of the index were arving versus the names. Right. As you would with the perp. But more and more have started to use it as a tool to sort of just delta hedge their books. You know, why buy 20 perps to do a short side when I can just use one perp? And now with the 80 you can extend all the way down to token number 100 and really just move around market beta on your book very efficiently. So yeah, it's a great, it's a great product and CoinDesk 80 is brand new, but I have a feeling that's going to be like the pro choice because it's hard to find that liquidity elsewhere.
- [28:26]
Bryce Paul
Yeah, no, it's a really interesting concept and like the counter to all, you know, the buying and selling of all the perps is the funding rate. And I'm curious how sort of an exchange like that kind of works with the funding rate. Does it change every eight hours like it does with the perps on like sort of the retail exchanges? Or do you kind of get some more institutional fixed rates?
- [28:48]
Andy Bear
No, no, no, it does. It's actually the bullish perps fund every one hour. And so we do have a funding rate and we have a very low latency calculation of the index. So the mark price is, is, is fairly reliable. And you know, the funding rate it, it because it's institutional use and you don't get this sort of, you know, I think a lot of per funding rates ultimately, especially as you mentioned on the retail side, will get perturbed by. Yeah, they'll get whipsawed by sentiment and by need for funding. Right. So people who are using these index perps, usually you're going to have a more, I guess, nuanced use case and are using this little bit less as an alternative source to funding. So I think they're going to be a little bit more sensitive to funding rates that are really out of whack and that tends to keep them in line. So no funding rates have been, have been, have been pretty calm. It'll be really interesting to see the funding rates for the 80 because as you saw, you know, performance is a little bit slower. It's a great short side for a long short strategy or market new neutral strategy. So I kind of want to see like who's doing what and, and how far away some of these, you know, how the funding rate will express, you know, the utility and the use cases of the perp. It's fascinating. I love it.
- [30:11]
Bryce Paul
Yeah. And I'm curious to get your thoughts on, on the Bitcoin ETFs, the Ethereum ETFs and kind of the slew of potential other ETFs that ever since Gary Gensler left I think there's been three or four dozen ETF proposals that are now on the desk of the SEC now run by a very, very, very, very pro crypto, crypto friendly sort of administration now which we've talked about on the show a bunch. So we're not going to go into it too much. But, but I want to get your thoughts as an indeed fund manager on the ETFs. Is that good for your business? Is that bad? Does that help? Does that hurt? How do you guys kind of like, kind of rationalize around that?
- [30:50]
Andy Bear
Oh, it, it completely helps. And I should say that, you know we've, we've worked with Grayscale for and years. They've used XBX which is a 10 year old Bitcoin price index for GBTC and for BTC. So we've worked with them forever. The, the great. You know, I should explain the, the, the primary thing that index companies and cryptos do, there's no consolidated tape. Right. So if you want a reliable price of Bitcoin or Ether or anything else, you have to use a methodology to take prices from different exchanges and average them in a way that's, that's sensitive to liquidity and tamper resistant and put that in a document and then have governance over that and distribute that. So the CoinDesk Bitcoin Price Index started doing that back in 2014. Grayscale uses single token and multi token indices of ours for their ETFs and their private funds. And in fact when Grayscale sued the SEC two years ago now I guess read the circuit court judges ruling where they actually talked about how the index really gave a tamper resistant representative price of bitcoin so the index actually was part of Grayscale's victory in that lawsuit. So we love the ETF business because our clients, you know, issue ETFs. You know, this is, this is true here, this is true in Europe. My question is what happens next? Because ETFs as we learned last year, a lot of it's about distribution. And what happened in Europe was they got out of the gate pretty early with allowing ETFs on a lot of different names and there was some buy in back in 2017, 2018 and since then those markets have gotten smaller. So my question is, who is the candidate to buy a big chunk of a second or third tier name? Who is going to do it in an ETF but wouldn't do it directly? How big can that scale if it meets investors needs? Great. You know, when I, my, you know, I'm sure this has happened to both of you over the last couple of months. More and more people who are coming out of the woodwork saying what should I buy to form a core digital asset investment portfolio? And if they have to go around, oh, is this, have an etf is that, you know, it just gets hard. So we love it because it's adoption and it's the regulators doing the right thing to, to serve investors properly with this delivery mechanism. But we think for many investors after Bitcoin, they're going to want something like an index fund, which represent, which is proportional to how much time they're going to talk. They're going to be thinking about crypto. Right? If you're thinking about crypto, 80% of the time you probably have an account on a centralized exchange, you probably trade defi, you're fine. But for these kind of 5 percenters who are really going to allocate 2, 3, 4, 5%, you know, do they know SUI versus Solana versus Ethereum? They don't and they shouldn't and they.
- [33:58]
Bryce Paul
It'S, it's even more important to service that sort of 20%. We'll call it the 8020 rule, call it that 20% of people who want to interact with crypto because guess what, that 20% is the boomers. And they control 80 of the wealth. And so sure, me and Brendan have our millennial wealth, you know, trading the rails of defy and all that kind of stuff. And, and we're willing to do all that. And so it's, it's so, so, so important for, for folks like you, Andy, and companies like yours to service that sort of sector, like my dad, who you know, would, would never get a wallet. And he's like, you know, I just want, I want to bet the market, you know, and I have financial advisors, I don't speculate, I don't trade, I don't do this. I just want to get exposure to these sort of things. And no, I love it. And so I'm hoping, I'm hopeful that, you know, everything with the Trump administration kind of allows your business to flourish in more ways than you can imagine. And I guess my question to you would be, what is like the one thing that the Trump administration could introduce in policy that would benefit your business and you know, by, you know, sort of proxy, the rest of sort of crypto.
- [35:06]
Andy Bear
Yeah, it's, it's, it's, it's. We have a couple of angles that were, that we think are even under the current rules and the current guidance, we think that there are certain ways. Look, let's, let's start with the objective. We know that, you know, most people who have undergone, you know, investment training or have thought or studied investments understand that diversification is right, that's the free lunch, right. That's what's going to get you better risk adjusted returns. It also in digital assets gives you the benefit of not having to choose and really kind of trusting that the biggest and most important are going to be the ones that matter very much in a Q. Q. Q. Like way. Right. I think probably very few people who have made a lot of money with QS can name or name the business of the 10th, 11th, 12th constituent. Right. So, so index investing, let's just, you know, our view is that it, it is in many ways the more appropriate or prudent things for somebody to do who is spending a small amount of time in the asset class and doesn't want to select individual assets. You know, how can we get this through? Right now things have been asset by asset, right. We're going to regulate Bitcoin first. Okay. Now you can do ETFs. Token, by token is not going to work because we refresh the index every quarter. Right. So you can't do a token by token regulatory approach. You have to look at the index as an index and say, this is what it's trying to do. This is where it's liquid, this is what its objective is. And we think that it serves investors better. And so it's really more of a rule oriented thing with the regulators and the exchanges that I think will get us there. We hope that under the existing set of really, you know, legislation, legislation, regulations, Right. That, that we, that we will be able to serve investors because we think that real change in regulation ground up is going to take a long time.
- [37:16]
Brennan Veeman
Yeah. And I think along those lines, you know, we've started to see that change begin to happen. I mean, recently we had SAB 121 get repealed and that's a big deal because it really hindered companies and how they wanted to approach or even invest in the crypto markets. So do you think that, you know, we will see a relaxation of banking restrictions on the crypto industry?
- [37:42]
Andy Bear
I think the. Well, yeah, so SAB121, that was many in the industry. I'll try to make a, you know, a mature statement. You know, many in the industry were glad to see that go away.
- [37:58]
Brennan Veeman
I bet.
- [37:59]
Andy Bear
I believe, you know, just remember that the bank of International Settlements still sets risk limits for banks and it still has a pretty stern view about what kind of capital is required. For every dollar's worth of bitcoin you hold, you have to hold so much capital in reserve. And right now that's punitive. So this doesn't just turn on the spigot for, you know, either Goldman Sachs or JP Morgan to just, you know, sort of dive in. It does help. On the custody side. I, you know, one of the areas of the business that I'm really impressed the most is how maturely a lot of these kind of the industrial plumbing of trading is being. Improved custody collateral management, collateral enhancement. Right. Visibility and outreach to regulators about public blockchains, privacy versus semi privacy. Some of my friends who are leaders in some of these custody companies and collateral management companies are doing amazing things with decades of experience in traditional finance to make things better. Hash note. Liu Mizuhara, who's a friend of mine whose company Hashnote, was just purchased by Circle. Right. Their USYC product, which is, you know, accepted on places like the Deribit Exchange, which we should talk about, like, how good are these, you know, crypto native options exchanges? Let's actually, let's take that as an example.
- [39:31]
Bryce Paul
Yeah.
- [39:32]
Andy Bear
You have two institutions and they want to trade an option and Deribit is the place to go. Right. It is the number one kind of most liquid options exchange. It has a bunch of good listings. It's been around a while. It's regulated in Dubai. Okay, fine. So I'm going to have to post some initial margin against a trade. I do the trade. I have an, you know, I have a counterpart where I'm trading against the exchange, the exchange is facing somebody else. Maybe that Trade. So how do we think about collateral? Where does it sit? Who has access to it? Is there a tri party agreement? Do I have to post a bunch of USDC and not have a yield on it? Oh no, now I can use #notesUSYC. So I'm getting a yield on my collateral. That changes the cost of the trade. You know that just those simple mechanics of how do institutions handle their privacy, their collateral management and their trade flow, then prime brokerage and then custody, like that's huge, right? That's just, it's so important. I don't think that it gets to the level where retail people appreciate how much plumbing is being built up there. The quality and the trustworthiness are huge. Maybe FTX had to happen to spur investment in this way. But it's, it's the really sort of utility side of the business that is impressing me the most right now. And circle buying hash is a great example of that. Like we need that look at what you've built. We need that in house. So banking regulations, securities regulations, CFTC regulations, I think that the rule set will permit more instruments. On the institutional trading side I think it's, it's going to be more about trust and sro, self regulatory organizations and bilateral, you know, is to like over the counter derivatives, you know, bilateral trading. I think all that's moving fast. What actual bottoms up crypto reg legislation will look like in the United States? I don't know. I think it's a ways off though. We could look to Europe to Micah, we can look to Hong Kong with the sfc, we can look to Singapore with the mas, we can look to Dubai with vara. Those all happened, they took years. I think it's going to be, it's going to take a while and the question will be whether it can get done before the midterms.
- [41:57]
Brennan Veeman
Yeah, I mean, sorry, long answer there.
- [41:59]
Andy Bear
To a very short question. But that's, that's like what gets me so excited right now because if you think about indices being part of derivatives as well as funds, all of that stuff needs to be moving. It's right back to the, you know, my days sitting on a trading floor where there is a government desk and an equity desk and an FX desk and they're trading back and forth with other banks, with hedge funds, with pension funds, insurance companies and everything. A lot of that's bilateral, A lot of that is collateral moving back and forth. That stuff has to work and you can't post, you know, one USDC's worth of collateral every day if you're not getting some kind of yield on it. So solving that problem is super important, and I think we're getting much closer. And then how do regulators make sure that everybody who's doing this is acting within their risk limits? That's important too. So that's the part that really excites me because of institutional liquidity can continue to improve. The. The what's on the menu for retail and institutional investment is going to improve as well.
- [43:08]
Brennan Veeman
Yeah, I mean, it really does seem like we are overhauling the entire crypto industry and it's certainly for the better. And there's so much that we haven't done. There's still so much to do and, you know, it really gets us excited. But is there anything else that we might have missed that we should be keeping an eye out on for the rest of this year?
- [43:29]
Andy Bear
I, you know, again, let's see, people need to be educated. People need to understand what blockchains do, and I think we can't. You know, the one of the echo chambers some of us get into is we end up only talking to crypto people. Certainly you can, you can, you know, you can keep stepping off airplanes into crypto conferences and, you know, live out of a suitcase all year if you want to. But people need to understand the difference between Bitcoin's blockchain and Ethereum's blockchain and what their function is. So I always want to remind folks and remind myself, just have those conversations and just get people one extra step. I went to the theater with my wife and I went to the theater with some friends and we owed them for the tickets. So I said, okay, instead of paying you cash, I want you to download a phantom wallet and copy down your seed phrase. And I'm going to send you the money in partly in USDC and partly in Ethan, partly in Solana. So you'll have some money for gas. And I just want you to play. And I'll tell you, the couple hundred dollars I'm giving you is, is going to be worth thousands, hopefully in, in value, but also thousands in terms of learning. Get your hands dirty with some money. That's not investment money. That's. That's play money. And do that, learn that way so that it draws you in and at the same time you'll understand. Okay, that's on Solana. Okay, so this USDC is on Ethereum. So every time, when I see there's $200 billion of stablecoins, now that's good for layer ones. Okay, I get it, you know, I think getting people more and more connected with that kind of intuition and letting them have a little taste of it with an app on their phone that lets them observe and, and participate. I think that's critical. I just, I, and this is the year to do it because the tools are great and the markets are cool and you know, it's just, it's, it's education can never hurt anyone.
- [45:38]
Bryce Paul
Hey, as a, as a crypto podcaster and somebody who's, you know, been pounding the pavement for eight years trying to get people to download wallets and learn about this stuff and yeah, I completely agree and I couldn't, you know, I couldn't think of a better note to really, you know, kind of wrap things up on is just everybody at home watching. Like you've got a little bit of the secret, right? You've got a little bit of the gospel. Now go share the good news sort of with everybody else that there's this sort of new financial world out there that really is helping people. Certainly helped me achieve financial freedom so that I don't have to go out and work for a big corporation or anything like that. And it all started exactly the way that Andy just described. Somebody told me the best thing you could do, go download Coinbase, go download a Metamask, send it around and start, you know, getting your hands on it, really realizing that, hey, it's 6:00pm on a Sunday night or it's a holiday and you could still move your money in, in 10 seconds anywhere in the world for virtually no cost. Like, how cool is that? And then I was like, wow, okay. My whole life got redirected towards. It was a life changing thing. So I agree with Andy. Download Phantom Wallet. That's the new one. It's way quicker than Ethereum and Coinbase, how it used to be. So all good stuff. Andy, we couldn't, couldn't thank you enough. We're hopefully going to see you again sometime later this year. You'll come back on, give us an update on anything from CoinDesk indices side but until then, what can we put in the show notes for some links? Are you on Twitter? Are you, is there a website we could kind of direct people to?
- [47:08]
Andy Bear
Yeah, I'm at, at Bear B A E H R on Twitter. I'm, I'm on LinkedIn quite a bit. Just look me up under name coindesk.com indices for our products. Obviously. Go check out coindesk.com for news and for crypto prices. Will be a consensus in Hong Kong in mid February and then in Toronto in, in May. You know, if you're in New York City, just, you know, just look us up and come by. But you know, when you're, when you're on CoinDesk.com, you're, you're never going to be too far away from the, the strongest voicing crypto man, hey, that you.
- [47:44]
Bryce Paul
Might, you might have a new role in market.
- [47:45]
Andy Bear
I should write that down. That was a good one. Yeah.
- [47:49]
Bryce Paul
All right, well we, hey, we'll see you later on in the year. I'm sure there's going to be a lot of big updates we're going to want to catch up on. But until then, Andy, thank you so much. Everybody at home listening. You're welcome. No, I hope you guys enjoyed and we'll see you guys same time, same place next week.
- [48:02]
Andy Bear
Bryce, Brendan, thank you.
- [48:14]
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