An Inside Look at the Big Money’s Bitcoin Trading (w/ Michael Moro)

JUSTINE UNDERHILL: Genesis really led the
way in terms of the over-the-counter market for Bitcoin as well as alternative coins,
and then also is leading the way in terms of lending. But before we get into all of that, how did
you yourself get into Bitcoin? MICHAEL MORO: So I met Barry Silbert, the
founder of Digital Currency Group, when he was at his first company called Second Market. JUSTINE UNDERHILL: And Digital Currency Group
owns Genesis. MICHAEL MORO: Correct. And we are a wholly owned subsidiary, yes. And so Barry– and I met him in 2008. I had just finished seven years in investment
banking at Citigroup. And Barry had created this company that could
and would eventually take advantage of the oncoming financial crisis. As more assets became illiquid, more assets
were being traded over second market, we just really specialized in finding buyers and sellers
of illiquid financial assets. And then Barry discovered Bitcoin himself,
I believe, in 2011. JUSTINE UNDERHILL: Pretty early on. MICHAEL MORO: Pretty early on he went down
the rabbit hole himself. And I think he kind of took his time and went
through the skeptic to interested to convert to evangelist phase during 2011.

And then in the office all throughout 2012,
he just constantly talked about Bitcoin. And so one day we were like, what is it? You got to explain it to us. And he told us what it was. He actually called it the biggest financial
opportunity he thought he'd seen his entire career. JUSTINE UNDERHILL: And this is back in– MICHAEL
MORO: 2012. JUSTINE UNDERHILL: Wow. MICHAEL MORO: And so we said, OK. And we started studying it ourselves a little
bit. And we opened up our trading operation in
early 2013. The rest is history. JUSTINE UNDERHILL: Were you skeptical at all
when you first started looking into Bitcoin and when Barry started talking about it all
the time? MICHAEL MORO: So back in 2012 when we first
started looking at it, I didn't understand it at all. And sort of the Bitcoin 101 resources that
are available today did not exist seven years ago. A lot of it's very technical code– 0s and
1s. And it's like, how does this apply to finance? And we had a really, really difficult time
kind of getting our head around, how do you hold something that you can't hold? So how do wallets work? How do you buy anything with it? And, honestly, the smartest thing that kind
of helped us get over the hurdle of learning it was Barry was telling every employee at
Second Market at the time– he gave us two Bitcoins.

Every employee got two Bitcoins. And he said, OK, I want you to go and create
a Bitcoin wallet. So go to this website, create a Bitcoin wallet,
and we will send you two Bitcoins to that address. You have to do two things. One, you have to keep one of them for an investment
purpose. And the other one, you have to find somewhere
on the internet to spend it. OK? And so we all went and created our addresses
and Bitcoin wallets. And all right, don't lose the private key,
because then you'll lose your Bitcoins forever. And so we did that whole thing. Then all of us are– everyone's googling how
to spend Bitcoin. This is 2012, 2013. JUSTINE UNDERHILL: Right. MICHAEL MORO: And there's really only like
a limited number of retailers globally that was accepting Bitcoin at the time. And so everyone ended up, like, spending their
Bitcoins at the same place. JUSTINE UNDERHILL: Where did you spend yours? MICHAEL MORO: So there was a winery in Australia
that actually accepted Bitcoin.

JUSTINE UNDERHILL: OK. MICHAEL MORO: It is now the most expensive
case of wine I've ever purchased in today's dollars, right? But, yeah, so people bought, like, alpaca
socks and– JUSTINE UNDERHILL: All the random things. MICHAEL MORO: All of the things that were
kind of available. That was really what– OK, this makes sense. The actual going through it, receiving it,
sending it, and keeping your private keys– all of that really at least made Bitcoin tangible
for us. So we were just kind of getting up the learning

JUSTINE UNDERHILL: So your expertise– I mean,
you come from a Wall Street background. And then you were getting into illiquid market. So Bitcoin kind of fits perfectly into that. What was it like in the early days? What would you say an OTC market for Bitcoin,
and how does that differ from something like a traditional Wall Street market? MICHAEL MORO: So what was really, really hard–
I came from asset-backed securities and background. And so we were used to cash flows and assets. Here comes Bitcoin that has nothing.

And then how do you value this thing? How do we get our head around what's a fair
price for what Bitcoin was? So price discovery, which is still often cited
as a difficulty when it comes to Bitcoin was much, much harder back in the day. Because back then, you could really only trade
on two exchanges. One was in Slovenia and the other the Mt.
Gox in Tokyo. We really had nothing in the United States
to do this. And how do you know that the price you're
getting is actually the right price? On the OTC side, unbelievably illiquid.

And so because we were trying to make a market
and so we needed a buyer and seller, the chances of us having a buyer and a seller within the
same four-hour window was remote– at least very early on. And so we had to use some of our own balance
sheet, some of our own capital to make markets. Otherwise, we'd never get a single kind of
trade done. And, in traditional markets, you have t plus-3
settlement kind of back in the day. You had sort DTC sort of infrastructure to
help settle transactions. None of this existed, and still doesn't, frankly,
exist in cryptocurrency today. So a lot of it was, how do we do this? How do we settle this? And, really, we just kind of made up our own
best practices as to what needs to happen. And a lot of those we still follow today. JUSTINE UNDERHILL: Wow. So what is it like? So is it somebody will call you up on the
phone? And what types of clients do you have? How does that exactly work? MICHAEL MORO: So back in the day, a lot of
crypto anarchists– guys who wanted to stay off the radar of the federal government, who
also had a very macro bearish view of the world– central bank policies cannot possibly
last, debt levels are piling up.

And so we need a non-sovereign storer of value. And on the buy side, this idea of Bitcoin
possibly going to zero, which still exists today, was much more of a real possibility
in 2013. And this idea of Bitcoin could go 100x or
it could go to zero– that very binary sort of hit or miss outcome was really, really–
it fit the portfolio of Silicon Valley venture capitalists perfectly. Because they're used to making bets across
a whole bunch of different companies that might become zero or could become Facebook. JUSTINE UNDERHILL: Yes. MICHAEL MORO: And so this asymmetric risk
reward profile fit that perfectly. So a lot of our buyers in the early day were
just that– were basically the Silicon Valley venture capitalists and venture capital firms
that actually started to kind of take that risk reward balance in Bitcoin.

Today, it's a lot different. A lot of the early, early guys may have at
least sold a portion or a majority of their original kind of Bitcoin holdings. And hopefully they're retired and living a
good life somewhere around the world. Our buy side is much more institutional–
much more sort of hedge fund, family office, typically what you kind of see in some of
the other markets and less high net worth individuals. While they still play and are still getting
involved, we're seeing this a lot more from a client mix perspective. We're seeing a lot more institutions. JUSTINE UNDERHILL: Interesting. Would you say that the size of the trades
itself has changed over the years? MICHAEL MORO: Certainly. As the buy side appetite has grown, and, frankly,
as the price of Bitcoin has grown, I think that the average size of the transaction has
definitely grown.

I think early on, we were probably doing,
I don't even know, $100,000, $200,000 trades. And then now we're in the millions. So certainly from an appetite perspective,
I think that that has certainly advanced as well. JUSTINE UNDERHILL: In the early days– 2013–
how would you go about vetting your clients? Was that a big hurdle that you faced? MICHAEL MORO: Tremendous. Tremendous. And so as I mentioned the early on, a lot
of the Bitcoin holders were the crypto anarchists. And just this idea of AML KYC, that kind of
like ran against their whole ethos. And the idea of giving up your photo ID, social
security number, whatever it was to get vetted from Genesis, which is a broker dealer– we
have to do this. JUSTINE UNDERHILL: Regulated. MICHAEL MORO: We have to do this, otherwise
you can't transact with us. And so I think that was a hurdle for both
of us. For us to get used to the idea that clients
didn't want to be on board at AML KYC and for them to learn that if they want to sell
big blocks and use Genesis, you have to go through this process and trust us with your
personal information.

We used to have back in the day people that
would show up at our office with a suitcase full of cash. JUSTINE UNDERHILL: Wow. MICHAEL MORO: And say, I want to buy some
Bitcoin. I'm not telling you who I am, but here's my
proof of funds. And they'd open up their briefcase and there's
$100 bills. JUSTINE UNDERHILL: Wow. MICHAEL MORO: Obviously, we'd have to kindly
turn away the customer and say, I'm sorry, we cannot do cash transactions. We would have to collect all your personal
information– all the background checks and kind of things like that before you can transact
with us. But that was really like a wake up call for
us as to what the world was kind of like back in the day. JUSTINE UNDERHILL: And now going back to our
timeline, so let's say we're now 2014.

Mt. Gox, as you mentioned, there is a pretty
big scandal and it collapsed. How did that affect your business at the time
in terms of institutions wanting to trade with you guys and getting into the market? MICHAEL MORO: It's funny. I was telling someone, a friend of mine, a
story the other day just what this was like in 2013, 2014 trying to pitch the institutions. Say, hey, we're trading this new thing. You may not have heard of it.

It's called Bitcoin. And we were cold calling, emailing, trying
to get meetings. And we would either get hung up on, no emails
would get returned. And we used to actually try to go and meet
with some banks, and the banks would be like, you guys, you belong in prison for what you're
doing right now. That was at least the public perception of
what Bitcoin represented at the time. And it was really hard to not recognize some
of the negativity that was kind of happening with the Silk Road and Mt.

Gox kind of situation. So went Mt. Gox happened, I remember we all
went to the office on a weekend. And said, what do we do? What do you think happens to the price of
Bitcoin in the Mt. Gox? So all of us were like, it's going back to
100, which was kind of right when we first started trading– that was kind of right around
the price. It's going to go back to somewhere between
$50 and $100 and call it a day– or just go away entirely. This is the zero scenario. This is when people lose trust. This is when people say, OK, Bitcoin was a
fun experiment, but it's going away. And it didn't happen. And so for all of us who were already coming
up the learning curve and kind of the belief curve of Bitcoin, when it didn't go to zero,
when it didn't go away, we're like, all right. There's something really here given the resiliency. That didn't mean that institutions started
to take notice. That still took a long time for the folks
to kind of come around. But that's why people who were hanging up
on us when Bitcoin was 100 is now buying Bitcoins at 8,000.

But that's still part of the education process
on the institution side. JUSTINE UNDERHILL: Do you think that ended
up slowing down institutional adoption of Bitcoin? MICHAEL MORO: Certainly, I think. Because a lot of the headlines were not positive
back in the day, it was really difficult for folks to kind of take the asset class seriously. And two, because hedge funds are investing
third party money– they're not investing just their own money, they're taking investor
funds. And so there's kind of this additional fiduciary
responsibility to not put their clients' funds into something that may not be legitimate. And so it was really hard, I think, to kind
of make the case. Even if they wanted to, to sell it to their
LPs– to say, hey, we should buy some Bitcoin given all of the negative press that was kind
of happening at the time. So, yeah, I do think that it's certainly slowed
things down. But, at the same time, I'm not sure that world
was ready for institutions.

I don't know what would have happened if institutions
were like, all right, good, go. And I think we would've had a whole host of
other problems. JUSTINE UNDERHILL: It might have been too
early. So then moving on to 2015, 2016 talking about
issues with legitimacy. We start to see a bunch of new coins coming
on the market– a lot of alt coins. How did that end up impacting your business
as well as whether institutions took notice? And did that also scare them off because there
were a lot of illegitimate coins? MICHAEL MORO: I think it certainly confused
people. We have Bitcoin, why do we need Ether? And so, again, institutions and family offices
sort of came up the, I get Bitcoin, and then here comes the Ethereum. And it's like, OK, what is this thing? And then with Ethereum's success came hundreds
and hundreds of other kind of coins that sort of flooded the marketplace over the last few

And I think there was a ton of, OK, this is
too much and just noise, distraction. And along kind of came with, is this a scam? Is this a Ponzi deal? Just kind of a grab your money and kind of
run sort of thing. And so I think that it certainly slowed down
kind of the adoption and learning curve, as opposed to just Bitcoin. Keep it simple, just Bitcoin. And it's possible that investors would have
jumped in with both feet a little bit sooner had it just been the case. However, I think it also helped to broaden
the horizon of what digital currency could be. Bitcoin is very narrow in kind of what it's
designed to do, what it can do. And here comes this idea of smart contracts. And you're like, oh, wait, I didn't realize
you could do this.

And so I think it certainly opened up possibility
as to what cryptocurrency could enable in the future. JUSTINE UNDERHILL: So then how did you figure
out which coins were legitimate, which ones you guys wanted to get into the OTC market
with? How did that process work? MICHAEL MORO: Most of it's reverse inquiry. Most of it is these hedge funds calling us
and say, hey, we heard about this. Can you guys source this for us? And so we really do rely on our buy side investors
to sort of come to us and say, hey, we're interested in trading ABC or whatever it is. Can you guys kind of make a market? It's not as easy to just kind of flip a switch
and start trading it. Couple of things– one, some may have a native
blockchain that is different, which means we have to have wallets that are a little
bit different and storage and things like that may be a challenge.

And separately, because we're a broker dealer,
we have to do our level of internal due diligence to figure out whether or not something is
a security or not a security, which was sort of the ICO mess that kind of happened in 2017
and parts of 2018. But once we sort of check the boxes that we
need to kind of do internally, and as long as investor demand is there, sure. We'll absolutely make a market and look to
get involved. JUSTINE UNDERHILL: Interesting. So how many coins did you end up getting into? MICHAEL MORO: So currently, I think we trade
about a dozen. JUSTINE UNDERHILL: OK. MICHAEL MORO: But many of them are sort of
offshoots of Bitcoin.

So the Bitcoin and Bitcoin Cash, or Ethereum
and Ethereum classic. And so some of them are sort of forks of the
existing variations. But it's interesting– a lot of our buy side
guys are still, even 2019, getting comfortable with Bitcoin. That's still where they are. And so we rarely do get requests for coin
number 30, 40, or 50 on the market cap table. JUSTINE UNDERHILL: Do you notice differences
in terms of how the different coins trade? I mean, you guys have so much information. MICHAEL MORO: So, Bitcoin is the most liquid. It's the most heavily traded. It's been our number one traded coin almost
every month with the exception of probably two months. Bitcoin's been number one.

And so that has the least slippage in terms
of price execution. And as you move down the market cap table,
that's where the liquidity discount and premium really kind of come into account. So where you can do a million dollar Bitcoin
transaction at a very tight spread, coin number 100– if we trade it, you might have to pay
a significant premium or a discount to try to acquire the same dollar value. JUSTINE UNDERHILL: So what do you see being
more important there in terms of where you guys are able to make money? Is it on some of these alt coins where you
do have a pretty big spread? Or is it just on high volume Bitcoin transactions? MICHAEL MORO: My guess is that because of
who we're catering to, we're much more likely to make the money with the high market cap

If we service retail, we would 100% need to
be servicing a lot more tokens and a lot more coins lower on the market cap table– and
take the bigger discounts and kind of the premiums. But the discounts and premiums are there because
they're difficult to hedge ourselves. Then we have to turn around and try to locate–
and these coins, because of their illiquidity, might be much more volatile than Bitcoin is. So it's just kind of the price you have to
pay, because the liquidity and the volatility of the underlying asset class. JUSTINE UNDERHILL: But do you end up getting
a sense of where resistance is, where support is in terms of some of these coins? Like for Bitcoin, do have a pretty clear idea,
this is not going below 5,000, 4,000, 3,000? MICHAEL MORO: I've certainly made my share
of incorrect price predictions.

So I'm not going to tell that there are certainly
supports and resistance kind of levels. I've always found that technicals work until
they don't. And so while we certainly don't believe that
Bitcoin is going to zero, could Bitcoin have gotten to under $2,000 last year? Yeah, it absolutely could have. But I'm also kind of careful to not cap the
price either, because I think whatever we think, we're typically wrong. JUSTINE UNDERHILL: And then moving on from
2016 to 2017 and 2018, you guys actually started to get into the lending business. Could you talk a little bit about how that
idea came to be and where you are now with that? MICHAEL MORO: So back in the day when we first
created the trading desk– when Genesis first came about– we had purchased in 2012 a bunch
of Bitcoin that helped to seed the trading business.

And so we had bunch of excess Bitcoin sitting
on our balance sheet. And we used to have companies that were basically
friends and family– companies that were a part of the digital currency group's venture
portfolio that would come to us and say, hey, can we borrow some Bitcoin? I know you guys have a bunch, can we just
borrow some? And so in a really pilot friends and family
type of thing, we started lending out Bitcoin. And this is probably 2014, 2015– much, much
earlier. And served as a favor, almost, to companies
who we were relatively kind of close to.

And then I would talk to Barry every now and
then about, hey, can we start a lending business? Can we start a lending business? And, to be honest, though, in 2014-2015, I
don't know, again, if the market was ready. Because this idea of borrowing to short is
a more institutional mindset. We didn't have a lot of institutional investors
kind of in play back then. So while people would've lent us Bitcoin and
whatnot to lend so that they can earn interest, I don't know how strong, truly, the borrow
side in terms of demand would have been for that side of the trade. 2017 changed all that. So 2017, with the price of Bitcoin kind of
doing this– ultimately kind of hitting the $19,000, $20,000, that really kind of brought
an influx of institutional investors that typically use sophisticated trading strategies. I'm a long-short equity fund manager, I need
the ability to borrow and kind of go short.

And so it was in early 2017, actually, when
I said with Barry and he was like, all right, let's do this. And it took us about nine months to get our
thoughts together and hire some personnel. And we said, OK, let's launch. So we launched Genesis Capital as an affiliate
of Genesis Trading in March of last year. I wish I could tell you, again, that we knew
the bear market was coming. From a timing perspective, it couldn't have
been better for folks to take advantage of a falling price environment and kind of get
the ability to borrow. But it just so happened that we were ready
right at the time when the bear market ultimately kind of happened. JUSTINE UNDERHILL: So would you say it's mostly
institutions looking to short or to hedge? Or what is the market for lending like? MICHAEL MORO: So it's interesting.

I would bifurcate the lending market between
Bitcoin and everything else. JUSTINE UNDERHILL: OK. MICHAEL MORO: Bitcoin is about 2/3 to almost
3/4 of our loan portfolio today. So it is still predominantly Bitcoin. But no one is actually shorting Bitcoin. So all of the borrows that are happening in
Bitcoin are not used for speculative shorting. It's either two things– one, no one shorts
Bitcoin. It's possible. Or people are taking advantage of the futures
product on the CME and sell kind of contracts that way without actually shorting that spot
market to get short exposure. But the demand for Bitcoin is actually a few
things. One, we get a lot of market makers that just
need to borrow Bitcoin. Because, as we chatted earlier about working
with exchanges, you have to pre-fund. You have to keep Bitcoin in all these exchanges
to kind of be able to trade with them. And so they just need coins parked on these
exchanges so that you can trade. You can either have bought all those coins
and take the price risk, or you could have just taken out to borrow and just paid the
interest expense.

So we get a lot of folks that are trying to
just trade on the exchanges and kind of need that borrow. Two are arbitrage guys taking advantage of
different– not just exchange to exchange arbitrage, but potentially the futures market. When the spot market and the futures market
diverge, you actually have an arbitrage opportunity there. And you may need to borrow Bitcoin to kind
of be able to take advantage of that arbitrage opportunity. The third bucket, which is more interesting,
is working capital. We have companies in digital currency whose
working capital is actually denominated in Bitcoin.

It's not in dollars. And so they actually come to us and say, we
want to expand our business. But we need Bitcoin to be able to do it. So it's actually more of a business loan,
almost, as opposed to a Bitcoin. It's a commercial loan that I'm giving– JUSTINE
UNDERHILL: That's a market I didn't know existed. MICHAEL MORO: Right? And it took us a while for us to kind of identify
that that's what this was. But it's not for speculative reasons. It's like somebody borrowing Apple's stock
and then using Apple's stock to grow their business. It doesn't make any sense, but it does in
crypto. And so we have a bunch of companies that are
coming to us for commercial lending to help expand their business. So that's Bitcoin. Everything else is speculation. So people borrow Ethereum or Litecoin or whatnot
to take at least a short term view on negative price movement. But that's a short smaller portion of the
book. And then towards the end of last year, we
decided to experiment with lending out dollars.

So it's the exact reverse. When we make a Bitcoin loan, we're taking
in dollars as collateral and making a Bitcoin loan. This is the actual reverse of people giving
us Bitcoin as collateral and they want dollars. And they've started to kind of do this. One, I'm sure the bear market didn't help–
didn't want to sell Bitcoin at a depressed price. And two, they were like, hey, but if I sell,
I have to pay taxes, capital gains. It's not going to be a pretty tax bill for
me. And so can I give you $1 million worth of
Bitcoin and you give me a half a million dollar loan? And I'll give it back to you in, whatever,
three weeks or four weeks, and you can give me my Bitcoins back. So it became the actual reverse of what we
were doing. And that has seen tremendous demand.

So that is now, next to Bitcoin, our number
two product is actually US dollars. So that's much bigger than Ether or Litecoin
on the borrow side. JUSTINE UNDERHILL: So this loan business has
grown pretty dramatically over the past year. How big is your book right now would you say? MICHAEL MORO: I think as of yesterday, it
was about $340 million or so– loans outstanding. JUSTINE UNDERHILL: Climbing up there. So then, would you say that this is something
that's likely to overtake the OTC side of the business? MICHAEL MORO: It's funny– OTC trading is
very volatile. It has great months and it has not so great
months. The lending business is much more of a fee
business. So you have the portfolio and it just earns
a spread over time. So it's actually a bit more stable and projectable. And so as the portfolio naturally grows, I
do think that from an overall dollars in, dollars out perspective, that the lending
business will become bigger on the trading. However, if the bull market comes back on
the trading side of the business, yes.

You will absolutely see months in which trading
will crush the lending side of the business. But the lending business is certainly helping
from a predictability, stability, to kind of help smooth out the overall Genesis revenues. JUSTINE UNDERHILL: Do you see the lending
side still doing well in a bull market, probably because of the working capital aspect and
because of all these other aspects to it? MICHAEL MORO: So I had this theory, like,
we did well in a bear market last year.

So what happens in a bull market? And I said, yeah, I guess the short-sellers
would disappear. But I've always believed that, one, I think
the working capital narrative I think is certainly true. Two, I think that as the price grows in a
bull market and the crypto market cap pie continues to grow, I feel like short interest
and kind of the borrow market is always going to be a percentage of the bigger pie. And as the pie grows, I have to imagine that
the borrow market is just going to grow correspondingly. And I still think that we're a tiny, tiny
fraction of the spot market– of kind of the longs. And so I think there is tremendous growth
potential on the lending side. And as kind of the market cap kind of grows
in a bull market, I think the lending market kind of grows with it. JUSTINE UNDERHILL: What do you think institutions
want to see from the crypto space before they get into it in a bigger way? MICHAEL MORO: This is probably covered in
every single crypto conference, because for years, we've been talking about this institutional
wall of money– whatever that meant.

It's just about the kind of knock on the door
and bust down the walls and ultimately take over. It's a story and a theory that we still very,
very strongly believe will happen but really hasn't kind of taken a hold yet. Now, a couple of years ago, things were much
more like AML KYC money laundering. There's concern, certainly, about what some
cryptocurrencies are kind of being used in kind of the dark web and all of that. Two, has always been custody– how do I safely
hold my Bitcoins? How do I prevent getting hacked and all of
that? And then people talk about price manipulation. How do I know that this is kind of a fair
and orderly market? Insurance– what if my coins are hacked? Is there available third party insurance to
kind of make me whole? And then people still point to, hey, we need
an ETC or we need some kind of back office settlement to help create efficiencies on
the back end on the settlement side. JUSTINE UNDERHILL: And that's actually an
interesting point, because that doesn't really exist.

I mean, in one way, you have coinbase, which
is sort of everything wrapped into one, whereas you go to the stock market, you have the NYSE,
you have DTC, you have Bank of New York Mellon. And that's pretty much structured in a completely
different way. MICHAEL MORO: It is. And, to your point, it's all bundled into
one on an exchange today. JUSTINE UNDERHILL: For crypto. MICHAEL MORO: For crypto. And then on the OTC side, if you were to buy
Bitcoin from us, OK, oh you owe me dollars. I owe you Bitcoins.

Somebody has to go first. JUSTINE UNDERHILL: Yeah. MICHAEL MORO: Right? JUSTINE UNDERHILL: Yeah. MICHAEL MORO: And so, as Genesis would say,
we always act second. So you send me the dollars. Once your dollars hit our bank account, Bitcoin
goes to what the Bitcoin address provided. But that's trust that you have to have in
Genesis to not just take your money and run. JUSTINE UNDERHILL: Right. MICHAEL MORO: Right? But this idea of simultaneous settlement eventually
has to kind of come about where you sending me dollars and me sending you Bitcoin happens
at the same time so that we're not kind of taking out a counterparty settlement risk. And that's something DTC would solve– a DTC
kind of equivalent. But maybe smart contracts kind of solves that. And so you actually don't need an entity kind
of running that. But that's a missing infrastructure piece. But why are institutions still not kind of
getting involved? One is probably the lack of the ETF. We still don't have an SEC-approved exchange
traded fund here in the US. And Barry, on behalf of grayscale, is trying
to make a lot of strides to get there.

But I think the commission has concerns about
market manipulation and whatnot that is sort of preventing that. But if it's become really, really easy to
just buy Bitcoin just like you're buying gold through the GLD, maybe that kind of helps
spur some level of adoption and not worry about custody and kind of getting hacked,
because that's all outsourced and kind of managed. And then it's all reverse inquiry, I feel. I feel like at some point, a lot of the issues
I just described to you– market manipulation, custody, insurance, DTC– people who said,
hey, I'm not ready to buy Bitcoin at 1,000, 2,000. We're buying at 10,000, 15,000. Because it sort of got to momentum trading
and you could not not be involved. And I feel like, in a way, price momentum
will magically erase a lot of these concerns– perceived or real– that some of these investors
ultimately have. Because as a hedge fund, you're going to have
LPs be like, why don't we own any Bitcoin in our portfolio? And if the hedge fund still says, no, we still
don't think it's legitimate, they'll get their exposure elsewhere.

They'll go find that one hedge fund or two
hedge funds that actually are investing into the asset class itself. It will sort of become a necessary portfolio
component. JUSTINE UNDERHILL: Do you think that there's
a sort of problem in the Bitcoin market right now– or crypto markets– where there isn't
a clear way of evaluating prices or what value really is? Is that something that is also a hurdle to
overcome? MICHAEL MORO: I have conversations and kind
of thoughts about why arbitrage opportunities exist. It shouldn't, in theory. Prices for the same thing should be the same
anywhere around the world. And it's not. And I'm not quite sure it will ever be. And part of it is because different exchanges
charge different fees.

And so people take fees into account when
they're thinking about prices. And so they said, oh, yeah, that one's going
to trade a little bit differently because their fee structure is a little bit different. So that's one. Two, because of this nature of crypto to crypto
transactions, it actually makes the permutations and combinations you need to run to keep prices
the same really, really difficult. We chatted about Apple stock– let's just
kind of stuck with Apple. The only way to buy Apple stock currently
is on one exchange, and you can only buy it with dollars. Right? JUSTINE UNDERHILL: Yeah. MICHAEL MORO: In crypto, there's Bitcoin trades
on hundreds of exchange globally using different fiat pairs– so whatever the local fiat currency
might be. And, on top of that, I can buy it with Ethereum. I can sell Ether and buy Bitcoin– so not
even touching the dollar leg. And I can do that with Litecoin, I can do
that with a bunch of other cryptocurrencies and buy Bitcoin.

When you have so many different paths and
combinations that can buy and sell everything, it's nearly impossible to keep the price exactly
the same across everything. And so that's why I think arbitrage opportunities
will exist, although I think the opportunity is certainly kind of becoming smaller. JUSTINE UNDERHILL: How do you see high frequency
trading changing this market? And how has it changed the market already? MICHAEL MORO: I think that when you speak
to high frequency traders, I think they'll, without fail, complain about data feeds, latency–
things that they're sort of taking for granted in the other markets just aren't there yet
in crypto.

And so they're getting a bunch of error signals
and it's tougher for them to kind of run strategies and whatnot. And so that's why crypto is not ready. And, to a large extent, perhaps that's true–
although we're seeing much more high frequency buys entering the space, making it certainly
challenging for crypto-only firms– market makers to sort of compete with some of the
biggest high frequency trading firms in the world. But, again, I think that's a good thing. I think that for the institutionalization
of the asset class to ultimately happen, I think you need the high frequency guys kind
of playing in it. And everyone, I feel like, is dabbling in
cryptocurrency. I feel like every prop trading firm in Chicago
has a crypto trading operation. JUSTINE UNDERHILL: Would Genesis consider
getting into more derivatives for crypto? Or is it pretty much sticking to the OTC of
the lending business and that's it? Or where do you see this going? MICHAEL MORO: I think the premise of Genesis
has always been that while digital currency is a new asset class– it shares characteristics
with stocks, and bonds, and commodities, but it's an asset class on its own.

However, we're all going after the same pool
of investor money. It's the same endowments, hedge funds, family
offices that invest in stocks, bonds, and gold that we're saying, hey, have some allocation
to crypto. And, because of that, I've always felt that
the investors are going to want the same products and services that exist in other markets in
crypto. And so there's a huge gap that still kind
of needs to be filled. We were chatting about infrastructure and
kind of what's missing and products and services. So for Genesis, I think that, again, along
the lines of, investors get this in the stock market.

We need to replicate some version of that
in cryptocurrency and the way we kind of do it. And so, yes, you can buy and sell, you can
now borrow and lend. So that's kind of the spot trading and stock
loans in the equity market. And so we're trying to figure out how would
we custody funds for clients? How would we offer futures and options and
potential margin trading? Which is, again, a CFTC regulated kind of
activity. And how would we wrap all of this in a nice,
neat bundle to be able to kind of offer that as a registered broker dealer? I think that's kind of the biggest challenge
for us right now because a lot of these activities that I just described requires different regulators. And broker dealers and prime brokers typically
are able to do everything I just described under one umbrella.

We don't have the luxury to be able to do
that. We have the SEC, we have the CFTC. We're also based in New York, so we have the
Department of Financial Services here in the state that we work very, very closely with
to make sure that we comply with the laws in New York. And so trying to build a very cohesive, comprehensive
product suite certainly requires being in constant dialogue with our regulators. JUSTINE UNDERHILL: And I've got to ask– so
it looks like Facebook has been looking to get into the crypto space, been looking to
create its own coin. How do you see that impacting the crypto space
overall? I mean, do you think it's going to create
more knowledge of– I mean, from users as to what this world is? Or do you think that could be potentially
a detriment to Bitcoin as it takes people away from that? MICHAEL MORO: It's funny. I think that one of the biggest things that
we had to do early on at Genesis was to make Bitcoin less weird. It's sort of seen– it's esoteric. You couldn't hold it.

You were like, how do I explain this to people? And institutions definitely had a difficult
time at least kind of mentally wrapping their head around the idea. Even though now, the world is moving to a
cashless society anyway– people are swiping debit and credit cards and not handing out
dollars and coins anymore– the idea of a non-sovereign backed storer of value still
took a long time for people to kind of get comfortable with. But as firms like Square, as firms like Fidelity,
and as, certainly, a retail platform like Facebook begins to roll out products like
this, it'll make crypto trading normal. It'll get more and more normalized to where
it's not as esoteric and strange anymore as it used to be. So I think in terms of mass awareness of this
idea of a company kind of coming out and coming up with its own coin, I think that is tremendously
helpful for the adoption of Bitcoin generally. And, frankly, to be honest, no one's using
Bitcoin to make payments anyway.

But that's not the thing that Bitcoin is solving,
whereas that's kind of what the Facebook coin is trying to do. And so I can't imagine that this is anything
but a positive for, at least, the awareness of cryptocurrencies generally. JUSTINE UNDERHILL: Where do you see the regulatory
landscape in the US going, whether it be for an ETF or just for ICOs overall? MICHAEL MORO: I think that that's probably
one area, again, as to why institutions haven't yet really kind of adopted cryptocurrency
is sort of regulatory clarity.

And US has been very vocal– the SEC has–
about, hey, most of these things are securities, without having provided a lot of clear guidance–
plain English– as to what constitutes a security and what's not. And I don't necessarily blame the US for it. Countries around the world like Singapore,
Switzerland have certainly taken a more progressive approach to legislation and regulation of
ICOs and kind of cryptocurrency generally. But I'd also argue that they have a lot less
to lose than the US if they were able to get their policy wrong. And I think the US also knows that they are
going to be the model for other countries to emulate and follow. And so they're going to take their time to
figure out what the right policy is. And while we on the business side want answers
today, I understand why regulators are at least taking their time. Where the US has a ton of work to do is on
the lawmakers.

The folks in Congress still, while some of
them are very knowledgeable, the vast majority of them are not. And so I think there's still a ton of education
that the industry kind of needs to do to make this more of a hot button topic at the top
of mind for lawmakers, even though they have a ton of other things on their plate to worry
about. JUSTINE UNDERHILL: In terms of the trading
that you guys do, is it mostly domestic, or is it international? How does that break down? MICHAEL MORO: So we've been predominantly
US for the last probably three to four years.

That's changed in the last couple. So we've seen an influx, certainly, of international
customers and we hired people in Europe. And we're looking to hire in Asia right now
for business development folks– especially around borrowing and lending, because that
actually doesn't touch the fiat leg. The US dollar is not necessarily a necessary
component of it. We see that as a tremendous kind of growth
potential area for us. But most of our clients on the trading side
are more traditional US-based counter parties who are looking to transact in large blocks. JUSTINE UNDERHILL: Interesting. So then do you see it that if the US doesn't
get that regulatory framework figured out soon, that the growth really will be in international
markets for the time being? MICHAEL MORO: I think that's already true. I feel like a lot of companies around the
world no longer need the US to raise capital, which is crazy. But that just wasn't true in other markets.

You needed to go to Wall Street. You needed to go to the banks and get your
stock offerings underwritten by the biggest US banks to be able to do it. Nowadays, companies are able to raise a billion
dollars without touching the US. And so a lot of that the capital formation,
the job creation is certainly happening in companies that don't really need the US. And in that regard, the US is almost irrelevant,
which is crazy, again, when you think about the traditional economy. That doesn't mean that the US is going to
be irrelevant forever. I think that the US certainly can catch up. And, granted, there's a ton of money in the
US. And I guarantee you that the companies would
be able to access– would love to access the US if they could. And so once they can, I'm sure a lot of that
innovation, job creation, capital formation will come back to the US.

But in the meantime, no one's suffering because
the US isn't being kind of progressive and kind of coming out with the new policies. If anything, it's actually preventing US customers
from being able to access platforms and being able to invest in interesting projects and
things like that. Just this morning, Binance basically said
that they're going to cut off all US customers, which is about 25% of their user base. So I think that it actually eliminates options
for US customers. And so it's arguably that they're being harmed
much more than the companies are. JUSTINE UNDERHILL: Finally, looking back from
everything you've learned from 2013 to today and then looking forward, what lessons can
you apply from your experience in these markets to, let's say, what the market will look like
5, 10 years from now? MICHAEL MORO: I think– and we've touched
on this throughout this interview about what's missing. What's missing in crypto? And, yes, we do tend to kind of focus, because
we compare asset classes and say, hey, equities has this and Bitcoin doesn't. Cryptocurrency doesn't have this while every
other market does.

And I don't think we take the time to kind
of appreciate just how far we've come in a very short period of time. A lot of the products and services and infrastructure
that exists in other markets took decades to form. Bitcoin itself has only been around for, like,
a decade. And to think that we already have a listed
futures product on the CME, that was unthinkable five years ago. And so I'm very, very confident that a lot
of the missing pieces will be there. Give us another few years, and then let's
see kind of where we are, because a lot of the smartest people in the world are still
working on the products and services in this asset class. I'm very, very confident that they'll certainly
kind of figure it out and kind of enhance the entire customer-investor experience even
more. But I'm also aware to expect the unexpected. This asset class is always evolving, always
changing. You take vacation for a week or two, and you've
missed so much. But that's also part of what makes this whole
thing so much fun.

I've never had as much fun in my career as
I'm doing right now. And I feel like investors, even though they're
told to only allocate 1% or 5% of their assets in cryptocurrencies, I feel like it takes
up 80% of their mindshare. JUSTINE UNDERHILL: Yeah. Absolutely. MICHAEL MORO: They spend way too much more
time thinking about it, not because they have to but because they want to. They find it interesting and intriguing. And this idea– I just don't feel like cryptocurrency
is going away. I think it's here to stay. JUSTINE UNDERHILL: Yeah. It's come a long way, but there's still a
long way for it to go. Michael, thank you so much for sharing your
wealth of knowledge with us. MICHAEL MORO: Thanks for having me. JUSTINE UNDERHILL: It was really great to
sit down with Michael today and get his insights on the future of institutional investment
and regulation in the crypto space, as well as an inside look at the lending market, including
the growing area of borrowing Bitcoin for working capital. I hope you guys all enjoyed it.

For Real Vision, I'm Justine Underhill..

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