How do investors make money with Bitcoin through Coinbase Asset Management?
There are hundreds of millions of people around the world who hold Bitcoin
and have been accumulating it in different sizes for many years.
For those people who have a lot of Bitcoin, they are looking for ways to make that Bitcoin productive.
They don't want to sell it.
The thing you're most excited about for 2027 is by far the thing I'm most excited about.
I think it's going to be a big topic.
The most on-the-rated narrative in Crupe the Rhino.
I think still vastly underappreciated and under-focused on.
When you look at on-chain asset management, where are we at with on-chain asset management?
The next cycle is going to be defined by on-chain asset management.
I think what you're going to see over the next few months is a continuation of large asset managers
who are going to be entering the space of on-chain asset management.
There's a lot of money to make in that space.
There's a lot of alpha-generating in that space.
Is this a good time to enter crypto?
This is not financial advice, but. Welcome to another episode of 51 Insights today with Anthony Basilli.
Anthony, welcome to the show.
Thanks Mark, it's good to be here.
Yeah, likewise, great you have here, Anthony.
There is lots to talk about, even though we're in a bear market.
Very, very interesting times.
Anthony, you spent a decade at BlackRock running the iShare's pension business,
selling institution the most traditional products on finance.
Now you're on Coinbase asset management,
selling those same institutions, Bitcoin and digital asset products.
Today, we're going to talk about the state of on-chain asset management
where on-chain yield really comes from and everything in between.
So excited for this conversation.
It's also to be here, Mark.
And it was great to spend time with you in Paris just a few weeks ago.
So I'm glad we could do this podcast.
Yeah, likewise, likewise.
And we already had interesting conversations there.
And I want to kick it off with the first question that is burning on my lips,
which is, everyone is looking at crypto right now.
The market is down.
We're in a bear market.
Meanwhile, investors are piling into AI.
People are speaking of an AI bubble.
How are you talking to investors right now?
And how do you get them excited about crypto?
It's a really important question because you're right.
The AI has sucked a lot of the wind out of the ecosystem for digital assets.
I think the way that if you look back and you go, say, where are we in the market cycle?
We absolutely peaked in November of last year, 2025, 126,000.
If you recall, the time you were kind of peak hype on the digital asset treasuries theme,
which was a massive narrative in terms of fund raising.
So over 60, 70 billion dollars was raised to fund the digital asset treasuries.
All of it, nearly all of it went to Bitcoin.
There were a few on Salana, Ethan others that today are still around.
But the vast majority of the activity is around Bitcoin,
creating an insatiable amount of buying demand and capturing a supply.
You were kind of post peak meme coin mania at the time.
And one of the underlying big themes was stable coin gross,
stable coin adoption back in 2025.
And this was dropping a lot of attention in terms of watching network effects
and watching the growth across these public blockchains.
You were at the beginning of the Clarity Act conversation
around the Trump administration's support for crypto.
Their intention to bring Bitcoin onto the balance sheet
of the US government or the federal reserve.
So there was a lot of narrative rhetoric around that.
If you remember, I remember seeing Trump in Nashville
that I think it was one of the Bitcoin conferences.
And so there was just a tremendous amount of activity going on last year,
leading up to the bulk market.
And a lot of investors got in.
I wrote a paper called GitHub Zero that we released,
you know, maybe Bitcoin was around 100 or so thousand at that time.
And you know, the intention of the paper was to continue to encourage investors
that they should have an allocation to Bitcoin and their portfolio.
And evidently what happens in the investor mindset and the mentality is
they wait until there's a clear momentum trade going.
But the vast majority of investors don't catch on to the momentum trade until it's too late.
And one of the things we know about Bitcoin is it's very consistent
from a pattern perspective, right?
The patternicity is incredibly consistent now.
Three cycles ever on to the fourth.
One of the things also that was unique about that time
was there were a lot of calls for a five-year cycle.
So the four-year cycle's dead, the five-year cycle's the new norm was the big call.
I think we can stand here today and look back and say absolutely that's a wrong call, right?
The five-year cycle's not dead.
We're now today, this is July, late July, 2026.
And we are down roughly 50% from the peak of the last cycle.
The pattern has been that over the next few months,
we'll continue to see a bottoming of Bitcoin.
The market expects the price range to be anywhere from on the extreme low ins,
35,000 to a more soft bottoming, maybe in the low 50s or high 40s.
So no one has a crystal ball, right?
And the thing about get out zero that we were trying to encourage investors at the time,
and we continue to do so today is really just get out zero.
Whether it's buying with a very small allocation year portfolio or buying with conviction
that's up to you as an investor in terms of your risk tolerance, right?
But the key thing that a lot of investors do is they kind of wait for the hype cycle to come in.
They find reasons not to do it.
They don't buy at some point and they maybe feel good about it because they miss the drawdown,
but then they don't buy again in the bear market.
So where we're talking to investors today is,
how do you purchase at any three or three-year period or longer over the past three or four cycles?
You would have made money in Bitcoin, right?
And that remains true today.
So the last top cycle was around 60,000.
Right now we're around 66,000, 67,000.
Maybe 64,000 today.
And so you would have round-tipped it, right?
Had you held about the bet last peak, but you still make money.
And there's a whole bunch of noise along the way, right?
The great thing about Bitcoin is there is a really strong track record that's
consistent up and down cycles that we have to look at.
There is tremendous institutional integration across ETFs,
futures, perpetuals, options markets, swaps, bank integration,
the largest asset managers in the world are integrating Bitcoin.
Whether it's an ETF, a trust structure,
or direct spot trading now into your brokerage accounts,
all that stuff is lied today.
It wasn't lied before.
So if there's any doubt and investors' mind that they need an allocation to Bitcoin,
or want an allocation to Bitcoin,
we can provide some evidence as to why we think that it's justified.
If there's any doubt that maybe this isn't the time to buy,
because of volatility, we can provide an answer to that.
That we think is a great time to make an allocation
versus what you would have done last year.
And if there's any doubt on the trajectory of where Bitcoin's going
as a part of the portfolio, I think the answer is already written on the walls.
We're having those conversations with investors.
They're still engaged, right?
They're more engaged than ever.
They continue to see the history, continue to compound and grow.
A lot of investors right now are actually very interested in making an allocation.
Most people are still kind of sitting on sidelines,
because they kind of hear the narrative across the industry
that there's a little bit more bottoming to happen.
And so they're trying to time it.
We try and coach people like you're not going to time it perfectly.
And never believe that if it is a 45 or 48 or 35 ultimate bottom,
those are typically very sharp candles or wicks
that will go down on a Saturday,
and then recover five or six thousand points the next day.
You're not going to be able to catch it.
So everyone looks back and they want to go.
I want to catch that low.
You're not going to catch the low.
You just need to start allocating and do it consistently over time.
Yeah, and we're going to talk about Bitcoin in a minute,
because that was also one of your first products.
But before we do that, I want to talk about,
or want to stay at the market structure.
And something we published about two weeks ago
was a piece that was called, "There won't be another cycle."
And the fat protocol thesis is that.
And for those of you who remember,
the fat protocol thesis came around in 2016
with the thesis that most of the value created in crypto
accrues to the protocol later.
So we have Bitcoin, Ethereum, Solana,
and all those other later ones.
And when we look back now about 10 years,
we realized that most of that value actually didn't accrue
to those layers and still doesn't accrue to those layers.
So it's just to give you a number.
Ethereum, one of the biggest later ones,
made around $1,500 on the recent Robin Hood launch,
which has around 600, 700 million in daily volume,
which is practically nothing.
And it's across the board, those later ones,
the same picture.
These later ones are making a revenue.
The value doesn't flow back to the token.
So that's the thesis we put out.
And now based on what you said,
how do you think about market structure?
Where does value accrue?
And how do your investors need to think about where that value lands?
I recently saw a tweet and it was kind of highlighting.
There's been a string of bankruptcies
who are just companies closing down, movement labs,
where they shut down after raising like $3 billion.
There's been a number of exchanges that have shut their doors.
And there was certainly some people made money
from those projects, right?
I think the exchanges, there were a few people
who made a tremendous amount of wealth.
So there was value creation there for some people,
but not for everyone.
And ultimately, though, they couldn't keep going.
We're at the bottom of a bear market cycle.
We're deep into the institutional integration
or what I call the enterprise phase of this.
This is the question everyone's asking is,
OK, well, we've seen billions and billions of dollars
be invested into early-stage venture
and crypto technology, wallet infrastructure,
and public networks and private networks.
And on and on, who's making the money?
Where does the money accrue?
Where does the value accrue?
And today, the question becomes, really,
is it a really function of distribution, right?
Is it a function of like, do the firms
who have the right licenses, who have the client
and customer engagement, the client profile?
Do they accrue the value?
Because they can now sell products within that infrastructure.
Which presupposes that most of what we're talking about
within crypto is just technology and market structure
rather than maybe software as a service,
right, or anything else.
The idea behind crypto was that it was a public good, right?
Which means it's supposed to be nearly free,
fast and efficient.
It doesn't mean fully free, but nearly free.
So, from a protocol perspective,
when you, I guess if you can create this fat protocol thesis,
it's hard to say.
say like the protocol itself is a public good if it's capturing a normal amount of value.
One of the things that happens in the legacy protocol architecture too that uses tokens
is that a lot of them use the token as their incentive mechanism.
So the customer acquisition cost is actually paid for with tokens that were created out
of thin air based off of the initial value of the company raised and offered to the market
in that way.
So that doesn't necessarily accrue, so I'd say it's very cheap equity as far as the lowest
cost of capital financing you could utilize, which is to give a distribution platform
a token grant that's worth hundreds of millions of dollars so that you're first on your list
and you get priority access to those customers.
And what we haven't seen is that there's a consistent revenue stream that then comes
back to the protocol.
The protocol does grow TBL, the protocol does grow usage, they do grow customer base,
they do grow a number of assets, they may need to get to the tens of billions of dollars.
But the question that we all still have scratcher heads on is where does the revenue switch
turn on?
How do you prevent yourself from getting displaced by the next competitor who has a new token
that they've raised and they can then utilize that in more ways?
So I don't think there's an answer yet in terms of really, is the stat protocol thesis
right or wrong feels like it's going away?
That says that the protocol is going to accrue the value where actually it's the distribution
platforms who have the customer relationship is the platform that accrues value.
That seems to be the direction of travel today.
It doesn't mean that's where it ends.
I think we have a lot to learn in the growth of this market structure because while we
are in a bear market, while we are seeing a lot of protocols go under, you are seeing
other protocols actually really be integrated into the enterprise systems today.
They are actually being integrated into the fintechs of the world that are being integrated
into the large brokerage houses of the world you're seeing.
And number of these protocols who historically looked like it was only serving crypto natives
now actually serving very, very large hundreds of millions of customers like platforms.
So I think the answer is still a little joys out, but it could come back and maybe prove
your paper right.
Anthony, you mentioned before Bitcoin, Bitcoin, obviously still the king of all cryptocurrencies
and one of your first products.
Can you just explain us what was that product about and how do investors make money with
Bitcoin through Coinbase as a management?
So this is a focus on Bitcoin yield and what Bitcoin yield is is the product that is
a actively managed strategy that allows for investors who are currently holding Bitcoin
to invest in a strategy with the Bitcoin and then they can accumulate additional Bitcoin
on top.
So if you think about the long tail of Bitcoin holders, there are hundreds of millions of
people around the world who hold Bitcoin and have been accumulated in different sizes
for many years.
Some people, Bitcoin, has become the preponderance of their entire net worth for others.
It's just a small line item and it just helps them continue to diversify their broader asset
classes across their portfolio.
For those people who have a lot of Bitcoin where this has become a majority of their net
worth, they are looking for ways to make that Bitcoin productive.
It is very low cost basis.
The mantra in Bitcoin is never sell, right?
You should have to override those other cycles.
And so far as proven right, it's become a great store of value for those investors who have
been able to hold it over multiple cycles, has appreciated far more than virtually every
other asset class over longer periods of time.
And so they don't want to sell.
Then they go, "Okay, what can I do in the Bitcoin?
Can I have it produce income for me?"
Because I need to go and buy house, I need to buy company, I need to pay off my debt,
I need to go and I want to diversify and read best in other ways.
And so if you think about that, you go, "Okay, well, my options are I can sell my Bitcoin
which I don't want to do and take a tax hit and not be able to have the beta.
I can borrow against it and I can take on debt."
And then now I'm facing some one of a liability mismatch and doing that, or, and that's simply
common in the private markets as far against your assets, or I can utilize this collateral
instrument, this digital collateral instrument as an investment tool.
I can invest it like money and say when we do dollars and have it produce additional income
for me.
So sell, we don't want to do, take on debt, maybe even if not that interested, have it
produce income.
It feels like the better alternative.
Exactly what our fund does.
So our fund allows investors to incline the Bitcoin.
We use the Bitcoin as collateral to run a number of different strategies.
So one of those strategies is harvesting options, volatility premium.
So very simply, you can sell puts and calls with the appropriate delta and risk management
strategy around that to harvest the premiums.
And that generates income or additional yield.
And then you can convert that yield back into Bitcoin for them.
We do that on top of Coinbase is now fully integrated, darebit, options exchange, largest
options exchange in the world is integrated into Coinbase who purchased them.
Another one is the basis trade funding rates.
The funding rate trade, which is very simply again, where you're long spot and you short
of future or perpetual and so you're capturing a spread again that can, it's fairly easy
to harvest, but you have to have a good risk management strategy and understand the dynamics
of perpetuals and spot positions.
Now that was the most interesting trade for market neutral funds from 2021 through 2024.
And the range of returns from a funding rate arbitrage trade was roughly net, like four
to eight percent.
And there were periods of times where it was deeply in the double, you know, the high
teens, maybe the low 20s, you know, for multiple weeks and months at a time.
So you can capture really phenomenal returns from that funding rate trade.
All that funding rate trade is leverage driven in a bear market.
The leverage leaves the system and funding rates are no longer that attractive and a bull
market, they're extremely attractive.
And so you want to be affected to be a lender of capital in that space of dollars.
And so we utilize that strategy on Bitcoin as well.
And so we can capture a spread on funding rates.
We are seeing that come back right now, which is an important bottoming signal because after
10, 10 of last year, you know, 25 plus billion dollars were wiped out across multiple exchanges
outside the United States, and there was this large swath of market makers and small prop
shops and others and retail traders who all got liquidated on their funding rate arbitrage
trades because they weren't hedge appropriately.
And because of other dynamics around, you know, things that happened on Binance and other
exchanges.
But nonetheless, that wiped out a ton of leverage that sent us into the bear market.
It was one of the big catalysts.
If you look at the corollary, you can go like, well, the FTX three arrows, BWI Celcius were
the big catalysts that sent us into the bear market of 22, the funding rate, the leverage
wipe out in October of 10, October of 2025 was the big catalyst that sent us into this
bear market.
And it's exactly what happened, right?
As soon as that 10, 10 event happened, you know, we went from peak 126 Bitcoin, basically
straight down from there.
And you were clearly in a bear market and the market of retail investors who were largely
burned on meme coins said, hey, we're burned on meme coins.
We're also not able to do funding rates.
What can we do?
This month's the funding rate trade hasn't been great.
It was actually been quite negative for a period of time.
But we're starting to see that fair and positive again, which means the markets recovering
investors have, who have capitulated have largely done so.
You've seen a long money.
The stronger hands now have been buying Bitcoin at these bottoms.
And now you're seeing them at leverage, right?
And so that means the funding rate's turned positive.
So what happens in the recovery period, which is about two plus years, is the leverage starts
to build, becomes more consistent.
It comes more persistent and this becomes a great source of persistent alpha in a Bitcoin
yield strategy.
So we're very excited to see this return.
We want to give it a few more months to make sure that the final leg of this capitulation
trade, maybe if it happens, it happens.
And we see where that what happens on funding rates.
But we think we're on the other side of that.
So that's the second piece, options, funding rates, the third piece is around cash and
carry, where you can post your Bitcoin as collateral, borrow dollars against it and reinvest
at a higher net interest margin in credit instruments.
And so short duration credit and high yield.
And so we've curated a portfolio, allow us to do that as well.
And so the combination of all of this gives you a broadly diversified, pro cycle and counter
cyclical options for kind of capturing yield, depending on where the market is, in multiple
cycles.
And so we're building this to be able to weather multiple starts, whether it's bull market
or bear market in the strategy.
Thank you for explaining this.
And then another yield strategy or credit strategy that you launched was in April, 2026.
It was, it's called CUSHY, your Coinbase stablecoin credit strategy.
Can you unpack that for us?
What is that about?
How does it work and what yields can investors expect from that?
I'm glad you asked about the Coinbase stablecoin yield fund and the acronym, acronym we
use is CUSHY on it, which the age is for high yield.
Now, what's important to know about this particular strategy is that investors across the crypto
ecosystem generally want to, one of two things, one is they want directional risk and they
want the beta of the market.
And so the Bitcoin investors we just talked about want Bitcoin's exposure and they want
a general income on top of the Bitcoin.
That's really hard to do, but we manufacture the strategy that can do it appropriately.
Other investors want dollar-based risk with just credit yield on top of it.
There's actually very few investors that we found who want something in the middle.
They want, they want either fully market neutral, so no variability in underlying beta, no
beta risk, but they want the spread returns or they want the beta return.
There's very little interest in the multi-strat, kind of like lower-val trend, momentum type
of strategies in crypto today.
That's a big topic in TriedFi, and we think it'll come eventually over in the space,
but it's not here yet.
So there's two spectrums.
So the credit strategy does the other end, which is we can take in stablecoins.
So it's a tokenized fund.
We worked with SuperState to tokenize the fund shares, it's tokenized on base, it's tokenized
on Salona, it's tokenized on MainNet.
So investors who want the credit strategy on chain and their wallet can participate in
that strategy with the tokenized share class.
They can invest with stablecoins, which is really unique because that's not generally
the norm for most funds, right, they usually require a bank wire or something.
We can do that too, but for crypto-native investors, they can use stablecoins.
The next thing is what do they get in the strategy?
design of
portfolio that we call stablecoin yield. So it starts with stable coins and then we look for ways
to put the stable coins to work to generate yield. Some of those some of the yield will come from
traditional credit. Some of the yield will come from on-chain credit. And so it's a hybrid approach
and the way we think about this is we're investing at the intersection of stable coins, tokenization
and credit on-chain. Okay, so we're looking for opportunities that connect or allow us to bridge
both of those parallel worlds right now which they haven't fully intersected. They're
two different parallel worlds. And so by that I mean it's very hard to find high quality credit
on-chain. All of the credit or credit like exposure on-chain you could call like staking Ethereum
or other primitives around staking or liquid staking assets. You can call lending into liquidity
pools. I can be viewed as a credit instrument. There's a number of products who present a yield
component right that is derived from basis trading across decentralized permissionless
perk markets right. And then what the result is is is a that looks a little bit like a fixed income
product, but they're all floating rate. Everything in crypto is floating rate. To go off-chain in
the tradfly world, the vast majority of credit is fixed rate and it's a longer term duration
generally. And a lot of it is you could either buy it direct or it's wrapped in funds. And none of
those funds really work on chain. So there's two different completely different worlds. So you have
your floating rate, crypto tied credit on-chain and then which is typically very transparent
permissionless and backed by crypto. And then you have traditional credit, which is secure
and obligations, asset backed obligations and things like that. So in the fund, we've bridged the
gap. So we said, we're going to go build a portfolio of separate account exposure,
traditional credit instruments, structured credit, CLOs, trade finance, asset backed securities,
accounts receivable, things that give us a high enough yield so that we can beat the DeFi rates
and make it interesting for the on-chain investor, but also give us the the ability to scale into a
fund that could be billions of dollars, right? And so all the assets that we hold are broadly
diversified pooled securities with hundreds of underlying names within each line item in the
portfolio. And so we're eliminating as much id syncratic risk as we possibly can. We're investing
across multiple sectors and multiple geographies into large portfolios that they themselves allow
us to have liquidity on a 90-day to a hundred-day basis as well. And then one of the core
attendance of this strategy is that we are working with originators who are also pursuing a tokenization
pathway. Because the vision that we have is that credit is going to connect. Those two parallel
worlds are going to connect. And we're going to be able to, in the same way that I might
are the futures versus Bitcoin or a futures or options product versus the equity, I'll be able
to arm the tokenized version versus the traditional version. I'll be able to hold one or the other
or both and capture excess return from the on-chain piece of it. And then if I want to, I can go into
the traditional version and hold my base, my base position. And so the portfolio today is about 80%
traditional structured credit, off-chain, 20% tokenized credit. We are working with partners
like Apollo and others who have already tokenized some of their assets or on the journey of tokenized
in your assets. We have other partners in the portfolio who have tokenized their credit assets as well.
And so we're making direct investments in their assets and then if we want to, we can go trade the
on-chain element of that. For the on-chain part, how do you manage and think about the on-chain risk?
So there's different elements of it. So you have, you have smart contract risk is one piece,
you have leverage or liquidity risk is another piece. You obviously have like a look through
a counterparty risk that was looked through to the underlying which we address as well. And I would
say it's one of those three categories of what the on-chain piece that it looks like. The good
news is is that the smart contract risk, most, if not all, the tokenized credit instruments are
done through regulated licensed broker dealers and transfer agents and they're issued by asset
management firms. And so they have an obligation in the United States, for example, to keep an off-chain
ledger. So we view the on-chain tokenized credit instruments who are issued in the right way
under the right jurisdiction to have actually very little on-chain risk because if something happens
to the protocol or the asset, the asset can be remitted. So that's very easy to do. The second
piece is around leverage. Some of the tokenized credit instruments that are on-chain today are being
utilized in similar cash and carry like looping leverage type scenarios. But some of them may get
a little bit too exposed or have the risk of getting too exposed to multiple different D5 in use
with other connected exposures to leverage. And if there's an unwind in one area, there could be an
impact to the positions in a particular vault which then causes for selling in those instruments.
So that's something that we monitor. Well, and that's what gives us the benefit of choosing to
be on-chain or off-chain. If I've underwritten the structured credit instrument off-chain,
and I know what's in the portfolio, we've underwritten that, we're comfortable with that position.
The fact that it's wrapped and on-chain doesn't change the underlying components, right? It changes
the market structure around the wrapper. So I'm comfortable with the underlying. I know what
the dynamics of that portfolio look like and underwrite that risk. Now that it's on-chain, I need to look
at the, you know, maybe the leverage factor that's connected to it. Where does it trade? How many
wallets are trading it? How exposed are we to multiple liquidity venues, multiple vaults and
nothing to vault infrastructure? What is the unwind or contagion risk if something happened? And
then what kind of forced selling would that cause? And I can make a choice. Do I want to be in the
tokenized instrument and participate in that? Am I getting paid? Are the right risk adjusted
for turn for that? Or do I want to just go sit in the traditional off-chain asset and wait? And I
may choose to just wait for the unwind to happen in the on-chain market and then go in and buy
everything on a discount. This is the beauty of like the alpha component, which something I think
we uniquely can do as a hybrid traditional and crypto manager, right, is that we can play both
sides of this market structure. And this isn't anything new. It happened in junk bonds, it happened
in high yield bonds, happened in traditional credit, right, over, you know, from the 80s onwards,
right? This is the same theme played out on new technology primitives with a new market structure.
So we view it not too different. ETFs, very similar conversation, right? The early participants
were able to arm massive, massive gaps between the underlying nav and the portfolio.
Citadel, I think it was Citadel, just posted like three billion dollars. Or as I was millennium,
it was more of the millennium pods, posted like a three billion dollar payout, just on arming
the index rebalancing of public market equities, right? One of the most basic things, right? And the
deepest liquid markets in the world, and they're making billions of dollars from arming this thing.
So we expect that to be true and tokenized credit in more positioning ourselves be able to participate
there. So let's take a step back and we already talked about the market structure. And I want to
zoom in now on on chain asset management in general. You talked about where we're at in the market,
you talked about the different different areas you're looking at. When you look at on chain asset
management, where are we at with on chain asset management? And where are we going to be in the
next two to three years? I think you hear calls of embedded finance today, where people are
we're trying to like, you know, it's redesign is a curator and asset manager is a protocol fully
decentralized and non-custodial is embedded finance, just just thin technology. And the market
doesn't have a decision yet, right? You can wrap it all in on chain asset management. And I think
that's the probably the appropriate wrapper at the end of this this journey. We're not going to get
there on day one. I think we're at the very beginning of holistically defining what bringing
things that we do well and try to find and have clear guardrails on on tape. So am I fiduciary?
Am I taking discretion or not taking discretion? Do I have the duty of prudence and care to make
sure that our customers are being taken care of and we're investing in the right way for their assets?
Or do I not? And there's a lot of redesign around the edges in crypto that maybe rightly is doing it
in the appropriate way in terms of the law. But I think what happens with this block with tokenization
and blockchain technology, it's changing the fabric of the legal architecture and the technology
and real time enforcing us to reconsider legal architecture. In the same way that we already
went through this and now we have clarity act, which is going to help us codify it, which is
is a crypto token of security or not. That was the big debate over the last four years.
And we've come to a point where we have our regulators who said like we agree we're going to figure
this out. We have I think we have a good pathway for whether something's a security or not.
The next cycle is going to be defined by on chain asset management and what does it mean to be a
fiduciary for your customers on chain? How do you utilize this technology to deliver discretionary
solutions to them in a risk-managed way with the right amount of disclosures and care? And I think
that's the first question you have to ask is can you do this work as a regulated investment advisor?
I think what you're going to see over the next few months is a continuation of large asset managers
who are going to be entering the space of on chain asset management. What does that mean? That means
these are regulated institutions with the right compliance infrastructure, the right licenses,
and the right teams to be able to manage a risk. And they're going to enter the space and they're
going to try to bring with them the process and procedures of regulated asset management into an
on chain asset management ecosystem. And there's going to be a ton of noise. I'm going to be a ton of
thrash. And you're going to see a crypto versus tradify conversation probably reemerge in that
space. And we're going to get back into the hey, don't touch my keys, don't touch my coins,
conversation versus hey, if you want me to serve you and help you with risk management,
I need to be able to handle some of these assets on your behalf. I need to have some kind of
discretion. So I think that's like the qualitative version of the world that we're coming into,
which is super exciting. We're very well positioned to have the conversation. We're very well
versed, but also technically ready for it. On the second side, the market structure,
I don't think is 100% there. So why do I say that? If you think about the way vaults work
today is one side, you have a lending community who are lending dollars looking for yield. And that's
a very retail focused permissionless. You can put your holding a stable coin. You can park your
dollars in the vault. There's no guarantees that you're going to get anything back. So you're
you're taking on technical risk and other things.
It seems like the market's very okay with that, right?
No.
how those dollars are allocated
into a lending against what, you know,
a type of scenario.
And they're lending against another vault,
which is then collateralized.
So one, everything's over collateralized,
which is phenomenal, right?
That's a very healthy market structure to be over collateralized.
But they're lending against collateral
that's predefined and selected
by series of smart contract decisions
and a portfolio allocation,
which is written by a team of engineers.
And so they're in line with the question, right?
Can we justifiably say that that is not
an discretionary activity?
Or is it more of like giving advice
and is kind of more user beware, you know, type of activity?
We don't have the answer to it yet.
And I think with Hester Pierce's recent comments on vaults,
they didn't say anything definitive to it.
They just said, we're looking at the space
we want to have dialogue with you,
which is a wonderful thing
because we did not get that kind of treatment
back in the Ginsere era.
So we're applauding Hester's comments
on opening the door for conversation
'cause it's one that has to be had.
The vault architecture, the vault technology
is massive, massive improvements
or was of magnitude improvements
over a traditional fund architecture.
Traditional fund addents are extremely slow
and challenging to work with.
In a world where the markets move 24/7, 365 now,
traditional markets are moving 24/7, 365.
Everyone recognizes in the asset management community
from BlackRock down that we need vault infrastructure.
It has to be a part of the core
invested management landscape.
How do we get there?
That's the key question.
And today it's kind of fraught with, you know,
you know, very good to native players
and others who are in the space.
A lot of traffic institutions are going to want to come in.
The space have already announced integrations.
JP Morgan announced their own vault on ConnectSys.
I think they rebranded back to ConnectSys.
It rises in the game, right?
Recently, Grace Gale made an announcement
of on-chain asset management
and you're going to see fidelity
and everyone else is trying to enter the space in their own way.
There's a lot of exploration too
of is the right model an on-chain DeFi vault integration
or is the right model integrate vaults
into your existing technology architecture
as a regulated institution and managing distribution
through that.
Which, if you think about like Coinbase, for example,
the handle crypto, the handle custody,
the handle wallets, they can handle vaults, right?
They don't have to go on-chain into DeFi
to use the token standards.
And ultimately, when you drill down into what is a vault,
it's a series of token standards
that are put together, right?
New token standards that are built,
centrifuges, they could've been one of the pioneers
in launching a number of token standards, 4626.
I think it's 7744, right?
And they have a new one.
And each one kind of compounds on the other,
allowing you to build more of that fund architecture,
real-time pricing, nav attribution,
things that we've kind of manually replicated
in DeFi are now done via smart contracts.
So there's a lot to impact there.
I think it's a super interesting space.
It's going to be a really important space
for us to have a public square conversation about.
Because ultimately, we do want to get to the right place
of trying to maintain the spirit of decentralized
market structure, but also bring in the right way
to serve customers with the most protection there.
I know that Hester Pierce is definitely very receptive
and is looking for a conversation we had her
on the show a couple of months ago.
And she's trying to do the best for the space.
She's unfortunately not in office anymore for a long time.
I think her term is going to end by the end of the year.
But if you could voice a wish or a recommendation
or an opinion of how legislators and regulators
need to think about what would that be,
how would you like that this will be laid out?
I don't think I'm going to be able to give any definitive answer
on what it is because the technology
continues to change and adapt.
I think there's a version of the world
where as a regulator, you're going to go like,
we already have a disclosure regime.
We already have a regime that allows
for investment advisory services to be delivered.
And those principles based regimes
don't require any technology, right?
But they do require you to follow your fiduciary duty.
So crafting the principles based and maybe updating it
in a way that allows for what kind of technology can we use,
can't we use is important.
It also takes some of the Clarity Act language in as well
because defining what's a security, not a security.
If you need a QC, do you not have a QC?
Is it a big piece of this, right?
Because today, as an advisor, technically speaking,
you need your customers' access need to be kept in a QC
if they are securities, right?
So what happens in the world of tokenized securities
when they move on chain our health and permission
in this vaults or in people's wallets, right?
So there's a whole lot of dialogue
that has to take place in terms of thinking through this.
And then I wouldn't give any definitive kind of response
other than to say, like, you know,
this is a conversation that needs to be had industry wide,
right?
This is one of those big topics
that take a very long time to play out.
You know, we're still dealing with Dodd-Frank
from 2009, integrations, right?
Not everyone is there yet, right?
So just because they pass legislation
doesn't mean that it's like day one, everything clicks.
Clarity Act goes live.
It's gonna take a very long time for firms to decide
if they're gonna issue a tokenized equity
versus a traditional equity.
Do they wanna do equity and tokens as a commodity or not?
How do they wanna raise money?
Do they wanna do it on chain capital markets
or a traditional capital markets?
There's so much to be unpacked there.
So I guess message would just be,
I'm glad that there's dialogue
and I'm glad we're having the dialogue.
We wanna keep it going.
- Anthony, we're almost at the end of the show.
- Lost question.
You've been in crypto for a while
and you've been a BlackRock for a decade
before you joined crypto.
When did you realize that Bitcoin and crypto
is a real asset class?
- When I was at BlackRock,
we were investing across asset classes,
equities, fixed income, alternatives,
private markets, hedge, right?
And you can break everything down into active and passive
and you have sector-based attribution.
You've got risk factor, you know, portfolio strategies.
And ultimately, one of the things
that became clear to me over time
was none of the institutional investors really helped cash.
The name of the game is don't hold cash, minimize cash.
If you ever have cash, it's a bad thing
'cause you need to be investing in risk assets
and that's why asset managers are paid.
They're not paid to send cash.
Keep your investors invested
and the pension, for example,
and also optimizes to keep as little cash as possible
so that they're always invested.
Why?
Why is that?
The reason is because they have to beat inflation.
They have to beat monetary supply growth
and they have to beat their liabilities, right?
So over time, if you can beat inflation
and you can beat money supply growth
and you can offset your liabilities
and make a little bit of extra,
then you're gonna have more money every time
and you compound that strategy for decades and decades
and decades, sometimes hundreds of years
for multi-generational institutions.
Now, what happens in a world where money supply growth
continues to outpace the actual return on markets, right?
And for firms and for institutions
who were very long-fixed income,
who underperformed dramatically
and then they saw massive pension liabilities grow
and the same way the federal government
sees massive liabilities grow
for spending too much money.
What happens eventually they go bankrupt
or they need to bail out from the PBGC or something, right?
Why can't they beat the return of the market?
Why can't they beat their liabilities?
And so the name of the game is always like rotate asset classes,
try to invest in the best ones
but do with an risk-managed asset allocation policy
that a consultant set
and everyone works together to try to come up with an idea.
But then the vast majority don't beat the market
and they don't offset their liabilities
and they typically are underfunded in different periods.
So I think 10 years of block rock really proved to me
that even at the highest level of global institutional finance
down to retail investors yourself
or if you're managing your own money.
The number one thing is can you beat one iterative basement
and can you pay off your liabilities, right?
And so then the question to come to how do I do that?
What assets will do that for me?
And equities have done probably the best job, right?
Passive, cap weighted index equities
have done the best job over time.
There's a period where private equity and venture
was seen as the best alternative
where you're taking on all that lock up risk and duration.
I think what we've seen recently is that particular space
and interim private equity is probably over saturated
and probably you're gonna have like a decade or two
of less than good performance.
But that's to be seen.
Now Bitcoin comes in and it is the only asset other than gold
that reports to have fixed supply, global access
and offset monetary debatement
and has proven now to have a better return
than the equity markets and other asset classes.
So Bitcoin back in 2015, 16, for me,
that was kind of the idea was, okay, I get it.
I understand what people are trying to do.
I understand what Bitcoin is espousing
or what the market thinks Bitcoin can do.
Let's see if it can do it, right?
So it's really been now a 10, 12 year journey
of participating in that exploration, right?
Is Bitcoin actually going to do the job
better than traditional assets
and traditional portfolio theory
says other asset classes can do?
That's why I came to Coinbase in 2021
and I'm like, I think pensions should hold Bitcoin
as a balance sheet.
I think it would be a really helpful diversifier.
I also think it will probably help them accomplish
what they're trying to do with other asset classes
that are unable to do a number of times
and we want to have the conversation.
So since then, we've done this with pensions
and diamonds, family offices, institutional investors
all around the world.
Last year, I moved out of the institutional business
around the asset manager
or have the same conversation.
Can we get institutions invested
into the theme of Bitcoin directly
and allow them to participate in that outcome
and/or can we help them invest
in this immensely disruptive market structure development
that's happening across defying on chain markets
and stable coins involved in tokenization
because that's exactly what it is.
It's market structure disruption.
There's a lot of alpha genera in that space.
That's always been true when technology comes in
and transforms things that you can either participate
and make a lot of money in that space
or you can sit on the sidelines and wait for it
and then participate later on.
So we're early in that space.
- That's a great ending.
I think we'll be much closer to that reality
in the next cycle.
Some of this already happened.
This cycle, super interesting, Anthony,
before we stop short lightning round,
those are short questions and short answers.
The first one is, is this a good time to enter crypto?
- It's a great time to buy Bitcoin.
This is not financial advice,
but it's a great time to buy Bitcoin.
And I think you need to be selective about all coins
because the majors probably a good time
to make a smaller allocation,
but there's still a lot to be seen
in terms of which networks are going to win
and which network is going to prove value,
how the tokens,
really are going to respond post clarity act. I think it's an important thing to watch.
The thing you were most excited about for 2027.
Entrepreneurship management is by far the thing that most excited about. At the bigger story in 2027, tokenized treasuries or stablecoin credit.
Stablecoin credit. The most on the rated narrative in crypto right now.
I don't know if it's underrated narrative, but privacy is a really important topic,
and most institutions are still like, I don't want the market to see my movements,
and I want the market to ping my wallets, etc. I think privacy is still vastly underappreciated
and under focused on. So I'm going to go privacy. Yeah, and I think Chema Pollyapotia published a
study a few weeks ago, which was very interesting on privacy coins, which basically outperformed
the whole market in the last one or two years. I don't know if the right way to approach it
is privacy coins per se, or if it's just architecture that needs to be built in. So that's the debate
we should have to is it investing in the theme of privacy is one thing and taking on market risk
versus just having privacy is another thing. Then one thing, CBAM Coinbase as a management
does really well. I think if you look at our team, it's really bringing the institutional mindset
to clients and helping them be thoughtful about what they're investing in, why they're investing,
what the risks are. So where we take a lot of great care and making sure that our investors have
your full transparency into the strategies and how do we deploy capital? And last one, a book or idea
from outside of finance to shape you. So outside of finance, okay. Will Durant, the age of faith.
He's a wonderful historian. I have some of his original copies from 1956 and he writes,
I mean, these are two thousand books, the awesome page books, and they go down through the Babylonian
Empire early, early BC that goes through civilizations. Then it compares the rise of each civilization
and also looks at how faith interplays with those civilizations, but it's a wonderful account
of history. Amazing. Thank you, Anthony, for coming to the show. This was great. Where can people
learn more about you about Coinbase as a management? Sure. Find me on Twitter at smartestbeta,
and you can also email me at
[email protected]. Thank you and all the best.
Thanks, Mark. Good to see you. You obviously liked this video enough that you got to the end.
Listen, do me a favor, hit that like and subscribe button because I think you'll like it.
And if you want even more, with more, I mean, incredible alpha research and digital asset market
updates, subscribe to our newsletter on 51, that's the number five one insights.xyc and get the
most actionable insights on digital assets. See you next time.
PodcastTranscript AI