Caitlin Long, Founder & CEO, Avanti Bank & Trust, Nic Carter, General Partner, Castle Island Ventures and Co-Founder, Coin Metrics and Michael Saylor, Chairman and CEO, MicroStrategy, Inc. spoke to Bloomberg Quicktake’s Katie Greifeld about the future for crypto and what’s next in the crypto space. They are at the Bloomberg Financial Innovation Summit.
——–
Like this video? Subscribe to Bloomberg Technology on YouTube:

Watch the latest full episodes of “Bloomberg Technology” with Emily Chang here:

Get the latest in tech from Silicon Valley and around the world here:

Connect with us on…
Twitter:
Facebook:
Instagram:

And now let’s get started with our first session.
Please join me in welcoming Caitlin Long founder and CEO of

Monte Bank and Trust Nick Carter general partner Castle Island
Ventures and co-founder Quinn Metrics. And Michael Saylor

chairman and CEO of MicroStrategy Inc.
It’s great to have you guys with me. We have three heavy heavy

heavy hitters 30 minutes and a lot to get to. I’m going to start
with the rapid fire question for each of you.

I’m only here in your view.
What has been the most significant development in the

cryptocurrency landscape.
Good or bad in the past year. And Caitlin good to put you on the

spot first. Oh boy. Okay. I would say it was the battle testing
that Bitcoin endured with China kicking the miners out and how

the hash rate in the network fell and came right back up and we
restructured and the bitcoin block chain just keeps on adding

more blocks and it’s even more battle tested and hard. And every
time some external attack like that comes at it it just keeps on

truckin.
Battle tested. I like that word. Nic I know you’ve been

following the mining discussions very closely. I want to ask you
the same question. What’s the most significant development we’ve

seen in the past twelve months.
Yeah the hash rate transition was immense and incredibly

revealing. But for me it was all Salvador legalizing Bitcoin and
acquiring it on its balance sheet. I mean that’s the first non

pariah nation to officially acquire bitcoin. There are others
that we sort of probably believe or it’s implied own bitcoin.

But El Salvador was the first truly integrated nation in our
international system to actually acquire it directly and

vociferously. So that was it for me.
Michael I’m going to get to you in just a moment but Nick I

actually do want to follow up because a lot of people would push
back and say that that roll out came with a lot of glitches a

lot of problem and that it’s a flash in the pan. One time
happening. I mean what would you respond to that.

Well I would distinguish the very real law that was passed
putting Bitcoin on even par with the dollar from the software

itself that was produced by the government and no government
produced software is ever going to be perfect. But you know the

important thing is that they’ve established Bitcoin as a
monetary good. That’s on a completely even par with the existing

monetary asset there.
All right. Fair point. And Michael coming to you same question.

Most significant happening in crypto in last year.
I think the emergence of a political consensus in the Western

world that bit coin is Western technology not Eastern
technology. Following the China crackdown and that Bitcoin is

property and not currency.
And the acknowledgement by the head of the EU Central Bank the

head of the Federal Reserve the head of the FCC Congress
senators that bitcoin is digital property. You can hold it. It

is the standard by which all other properties will be judged.
And I read that as a green light for institutions and mainstream

investors to own Bitcoin in the Western world. I think that’s
the most significant thing that happened this year.

All right. That was a great rapid fire and I want to zero in on
regulation because I mean that’s been the most interesting thing

at least from my perspective that around the world but
particularly in the US when you look to the Federal Reserve the

Treasury Congress all sort of sharpening their focus from a
regulatory lens on crypto. And just this week we had the

president’s working group on financial markets release a report
on stable coins. Those are designed to be linked one for one to

the dollar or some other fiat basically saying that stable coin
issuers essentially need to register at banks. And Caitlin 30

minutes before this panel you had a very tantalizing tweet. You
said that your you’ll give your first public analysis and its

massive impact on crypto. So I want to start with you. I mean
what’s the takeaway. What’s the impact. Well the takeaway is

that every stable coin issuer has to get FDIC insurance now and
the impact on of that is that the Bank Holding Company Act is

going to apply to every stable coin issuer.
What does that mean. I saw a very interesting article yesterday

that the press was starting to figure it out. The press did not
figure out the real impact of all this yet but it started to

yesterday that if Facebook is going to issue DRM then Facebook
itself the holding company would have to become regulated by the

Federal Reserve. Of course that’s not going to happen but that’s
what the Bank Holding Company Act means. It means Federal

Reserve regulation of all the affiliates. And so when I when I
say there’s going to be massive impact on the crypto industry

it’s really on the market structure. It’s not in Bitcoin itself.
Bitcoin is hearing all the all the the actual on chain coins are

going to be fine. But where you’re going to see an impact is in
a lot of the trading stable coins are about 70 percent of the

trading. A stable coin is on the other side of a crypto in about
70 percent of transactions.

And so what the president’s working group paper has done is say
and by the way they don’t need congressional approval to enforce

this. That that stable coin issuers have to get FDIC insurance.
What’s the impact of that. Well there’s not a single crypto

native company that has even applied for FDIC insurance yet.
There’s a reason for that. But that’s the fact. Actually there’s

one that has applied but the application was withdrawn. So now
all of us are starting from scratch to get FDIC insurance. It’s

a fascinating fact pattern because the incumbent banks already
have FDIC insurance. And I certainly hope that the intent wasn’t

to create a structural advantage for the incumbent banks because
all of these startups are now scrambling to get FDIC insurance.

And I can break a little news this morning. Last night of Ortiz
board voted for a monte to file for FDIC insurance. And we will

be dropping that FDIC insurance application very soon. But but
most of the crypto intermediaries are not structured to become

FDIC insured banks. They don’t have the capital. They don’t have
the they the compliance. They don’t have the management teams.

And very importantly they’re not ready to comply with the Bank
Holding Company Act which puts some pretty serious restrictions

on affiliates as well as on the cap tables. The banks for
example are not really allowed to have preferred stock in their

cap tables. And boy there’s a lot of venture capital money and a
lot of crypto intermediaries that don’t wouldn’t comply with a

bank holding company act.
Well I’m so thrilled because I love breaking news but Cuban I’m

curious that the fact that Monty has applied for FDIC FDIC
insurance is that in direct response to this this president’s

working group paper. Yes. And to be clear we haven’t dropped the
application yet. They have our business plan. We’ve been in

touch with them as as most of the crypto companies that are
seeking some form of bank charters have been in touch with them

and we look forward to working with them. The rules keep
changing and we’re going to figure out a way to get open. We

have no problem complying with all of these rules. We are the
closest among all the crypto intermediaries because we already

have that bank charter and we’re already in compliance with the
Bank Holding Company Act. The most important question though is

how fast this is all going to happen. And and Valente is going
to be a test case for that. We are. We are we’re scrambling to

get that application in as quickly as possible and look forward
to rolling up sleeves and determining whether whether the

innovators really will have the ability to compete with the
incumbents.

Well when you do drop that application I want you to tell me
first but Michael I want to bring you in here because on our

prep call we were talking about this race between sort of these
private tech companies and sort of these crypto native companies

and the government really to control this space. And Caitlin
mentioned that a lot of the crypto native companies haven’t

applied for FDIC insurance and that that could create an uneven
playing field. I’m curious to hear your thoughts on that and

who’s actually going to come out on top here.
I think the record is is a seminal event. It signals

the transformation of the industry from the offshore
unregistered

entrepreneurial organizations that have dominated it for the
first decade to the institutional institutionalised publicly

traded companies that are in the traditional industry.
It is a green light to the JP Morgan’s and the Bank of America

is on the Citigroup’s of the world to issue a trillion dollars
of stable coins. There’s one hundred and thirty billion dollars

of stable coins in the world right now. Right. They’re either
going to zero. If the regulators said you can’t have them or

they’re going to a trillion followed by 10 trillion. And I think
the administration knows this. And their vision is FDIC insured

banks properly managed with legal teams and general counsels and
compliance routines issuing billions and then hundreds of

billions and then trillions of dollars not for the use stable
coin use case right now is this subtle men of off shore

exchanges on Saturday afternoon trading crypto. But the real use
case is is Treasury remittance of Amazon and Apple and Google

and acts on cross-border or 8 billion absolute rule buying
things. And so if eight billion people are going to have digital

dollars in their wallets and if we’re going to move trillions
and tens of trillions of dollars of money around at the speed of

light you’re not going to do it without coming into the
regulatory environment which includes FDIC insurance compliance

and the like. So I think I think if you’re a small crypto
startup this is a bit scary. If you’re Jamie Diamond you were

waiting for this before you considered getting into this
business. And now the question is which of the big banks are

going to move first and which of the crypto native players are
going to cross the chasm to become institutional public grade.

And how many of developers will stay working for them if they
get acquired by big banks

like we got to grow up at some point. There’s a lot of Bitcoin
Maxis that don’t like the idea that publicly traded companies

own Bitcoin. But but that doesn’t stop me from buying three
billion dollars of it. And there’s a little friction between the

past and the future. And who’s going to who’s going to impact
this decentralized crypto economy.

Nick I want to hear your thoughts both on the paper and to
Michael’s point that I mean this could open the door to the big

banks the JP Morgan’s the Goldmans issuing a trillion dollars
worth of stable coins. I also want to hear your answer to that.

You know do you think that the crypto community would actually
use those stable coins this bank issues stable coins or who

would that be for.
Well the innovation historically in the stable coin space has

not come from the banks or the incumbent financial sector. It’s
come from startups and new crypto native firms. So I’m going to

push back a little bit here. I mean I found the paper to be
perturbing and I found that it didn’t

grant any recognition to the structures under which stable coins
are issued today

like the trust charter in New York or in Nevada or under the
money transmitter regime on the state by state basis. And you

know these structures work pretty well frankly. There’s
heterogeneity there. Right. But under some of those models you

have stable coin issuers as fiduciary is holding you know high
quality liquid assets. So the bank charter model which sort of

implies that the institution is engaging in maturity
transformation doesn’t seem to fully fit with what stable coins

are doing. It doesn’t really reflect the fact that they’re not
really engaging in long term lending. And so you know I would

push back a little bit and say I don’t believe stable coin
insurers need to be regulated as banks. That to me just seems to

invite a huge amount of government oversight.
And you know requiring FDIC insurance for stable point insurers

in my view doesn’t really comport with the fact that what
they’re doing is just holding high quality assets on a one to

one basis on kind of a full full reserve basis. And if you look
at the FDIC I mean that’s an instrument of government

intervention into the financial system. You know look at
historically look at Operation Choke Point. The FDIC was the

means through which political dictates were handed down. So you
know I find this to be ill fitting. And frankly I think you know

anti-competitive because it’s going to make it immensely
difficult for new startups to break and become stable coin

issuers. And it’s going to reward the largest financial
institutions.

Well Nick I’m curious to hear do you think that there should be
more stable coin issuers or would this structure this system

which you say works very well right now be better served by just
having one or two main ones. Because right now it feels like the

big boys are tether and circle and that seems to be what
everyone uses.

I mean it’s very dynamic. If you look at the market share
t’other had almost 100 percent market share and today they have

a much reduced market share. USD has been very successful. But
there’s other stable coins issued under some of these other

regimes which in my view are regulated. I mean people describe
stable currencies unregulated. That’s not the case. There’s

other stable points that have done very well and that are you
know pretty closely monitored by the relevant regulators whether

it’s DFS whether it’s you know individual states. And so it is
dynamic. And of course from you know a free market perspective I

think more issuers is always better than fewer. But the
president’s working groups

language here I think would restrict the state of issuers.
All right. Well we could talk easily for an hour about stable

coins but somehow we’re already halfway through our session
almost. I do want to say again to the audience if you have

questions feel free to submit them. But we have to talk about
ETF because last month history was made in the U.S.. You saw the

first Bitcoin futures backed ETF not physically backed funds
launch on U.S. exchanges. And that was to a lot of fanfare. I

mean the pressure is product accumulated over a billion assets
in about two days which is pretty remarkable. But Caitlin I want

to hear your thoughts on whether the fact that we do have U.S.
Bitcoin ETF now their futures backed again the caveat there. But

is that good or bad for the ecosystem overall.
Oh boy. It’s a double edged sword.

Ever since backed entered into the scene back in twenty
seventeen 2016 I’ve been warning that you know the leveraged

players coming into crypto we’re going to start applying the
same leverage games that the traditional financial industry

deploys. And when they do those leverage games they are creating
more paper claims to bitcoin than real on bitcoin exist. And for

owners of the real launching in bitcoin like MicroStrategy they
don’t care that the fact that the price gets kicked around.

We’ve had two flash crashes just since the ETF were introduced
in bitcoin. The pricing is going to get kicked around

periodically and probably suppressed because real demand is
being satisfied by fake supply paper paper supply. Ben that does

all things equal. When any time you increase the supply of
something and you hold your demand constant your price is going

to drop. That’s that’s exactly what’s happening. Bitcoin is now
let a lower price than it otherwise would be were it not for all

these leverage games. But I will also say that those warnings
that I that I had back in 2016 were were

about the leverage games that were going to be played. What I
missed back then was that it wasn’t the Wall Street firms that

it was gonna be our own industry that was going to bring those
leverage games. And so the ETF just ratcheted up by a lot. But

they’re but the leverage games this is one of the biggest trends
of this four year Bob Bull cycle is there’s so much leverage in

it. And the impact of that is is going to be fascinating. We
don’t really know how it’s going to play out.

Like going through a serious response here given that
MicroStrategy is a significant holder of unchained Bitcoin. I

mean what’s your opinion on these futures back products. First
of all I’m not concerned that a spot ETF is going to re

hypothecated or lend their bitcoin out. I think that that’s
going to be governed. So that’s not a concern of mine. I think

that the destiny of bitcoin is first it’s eating gold as fast as
it can. And so it’s going to it’s going to grow to replace all

gold ETF in the next 2 3 years. And ultimately it’s going to
emerge as the primary asset index for the Western world which

means it’s going to replace the role of the spider s p y. The
S&P index. And to do that you need to spot ETF S and once they

spot ETF role I think you’ll see billions and tens of billions
and hundreds of billions then trillions of dollars flow into

them and the ETF will just hold the underlying bitcoin as a
custodian and serve as an important institutional on ramp for

institutional investors that want that monetary index DAX
exposure.

Michael you said spot bitcoin ETF a few times there. I mean what
is the futures backed products that we are getting now. Are they

not the key to that.
Yeah I think they’re I mean they’re inferior offerings to a spot

and X but
they’re the best that institutional investors can get right now.

But clearly the right answer is let investors buy a trillion
dollars worth of Bitcoin via an ETF because the ETF plug in to

the existing security structure the existing prime brokerages
the existing collateral packages etc. So I think it’s if you’re

looking for an institutional catalyst. Clearly the availability
of a broad range of ETF is especially spot ETF. They’re trusted

and trusted. Like if I if I bought a billion dollars of this
stuff and then the person running ETF could read hypothecated 14

times that’s not trusted. I don’t think that’s gonna happen. I
don’t think that’s gonna be allowed. So if I have a trusted

perfected spot ETF I think it’s going to grow rapidly and it’s
going to serve a purpose as the basic monetary index of the

Western world.
NIKKEI what’s your opinion on that. I mean in thinking about

institutions in particular how big of a catalyst is the fact
that we finally have Bitcoin ETF in the US.

Paul Unfortunately the futures ETF is inferior and if we’ve got
a spot ETF I think we’d be the hottest commodity ETF launch of

all time attracting probably well over a hundred billion in
assets within a month or so.

But the current ETF we have right now is a shadow of that and I
believe it’s a political restriction which is limiting the

market’s ability to create this product that everybody wants and
this functional spot ETF and other countries that work just

great.
And there’s no explanation for the reticence at the top levels

here to approve this product which obviously should exist and
would make life immensely easier for all types of different

investors.
Wolf I asked you to explain that reticence among U.S. regulators

which I’m going to do right now. What’s your best guess for why
they approved a futures backed ETF over spot ETF. And I mean

what is the drawback. Because I feel like we’ve danced around
why you know the community really believes that a spot ETF would

be better.
Well because there’s just as you know and you’ve reported on

this very well there’s a significant cost 10 plus percentage
points associated with rolling a futures based product which

increases a lot of tracking error.
The stated justification is that the CMC is regulated

by the CFTC I suppose. But there’s plenty of other commodities
that have markets which are spot markets and globally traded.

And you know the you know the S.E.C. doesn’t really have a
problem with approving to ask for those that are a problem with

approving forex inverse natural gas ETF either. So a lot of
these complaints about investor protection ring completely

hollow to me. And I think ultimately the motive is just simply
suppressing the growth of a bitcoin.

Mm hmm. Yeah. Yeah I definitely have reported a lot about
contango in the last couple of weeks. And Michael I want to turn

back to you because you know a lot of people made the point that
it’s easier to just buy physical bitcoin and that’s something

that MicroStrategy has been doing for several years now. But I
was looking at your holdings and it did jump out to me that

since the mid half of this year you know micro strategies
purchases of bitcoin have cooled down in terms of the pace. And

I’m curious why that is.
Well we’ve acquired at least five hundred million dollars worth

of Bitcoin a quarter ago about 420 million this quarter. The
price of Bitcoin is going up. I mean we bought along at ten

thousand dollars a coin. It was a bit easier than so. Buying it
at fifty thousand dollars a coin slows you down. We’re going to

continue to acquire it.
Look I think with regard to that these ETF in the regulation

there’s a rate at which the regulators can evolve and they’re
going at a responsible prudent fashion in their view. And if

you’re an investor when they finally solve all these issues it’s
going to be a. I think it’s a thousand times easier to buy the

spot ETF than it is to buy. Bitcoin is property and institution
would take six months to a year to go through all the regulatory

compliance due diligence checks to actually figure out how to
acquire and hold and custody the property. And if it doesn’t fit

into their architecture. So when when that problem gets solved
the demand is going to go through the roof. The the motive to

sell it is is going to disappear. The price is going to shoot
up. Right. So you either do the work now and get a lower price

or you wait until it’s super easy and you pay a higher price and
everybody gets to make that choice. I kind of like the fact that

it’s hard to buy the property right now and the accounting is
obtuse and they spot ETF is not there. As I said tongue in cheek

with regard to the FDIC the FDIC chair was considering letting
banks put it on their balance sheet when they finally work that

out. Everybody all want it. Nobody else saw it. You won’t be
able to afford it.

That’s interesting. Yeah. There is sort of an exclusivity there.
But I want to stick with regulation and go to you Caitlin

because you’re based in Wyoming. And it’s interesting that
Wyoming has become this sort of crypto hotspot especially as you

know the broader federal government sort of tries to work out
how it actually feels about crypto. Wyoming obviously very

crypto friendly. Curious to hear first. Well why that is. Why
Wyoming and what other states do you think might be taking a

page from Wyoming’s book.
Well it was opportunistic and it in fact actually we’re seeing a

repeat with all of these new banking rules that are coming down.
We’re seeing a repeat of what happened four years ago where

suddenly a lot of crypto startups lost their bank accounts. I
think it’s pretty clear in fact actually the FCC chair yesterday

made an incredible speech that everyone with any interest in
fintech needs to read where he essentially said not only are we

bringing crypto into the perimeter but we are also bringing bank
as a service and rent to charter arrangements into the

perimeter. Translation get ready because a lot of thin texts are
going to be losing their bank. U.S. dollar banking access. He

all but said that yesterday and and and Wyoming got started back
in 2017 in part because there was so much banking of the

startups of crypto back then. And ultimately Wyoming was trying
to solve a problem for the industry. And it started because

Wyoming actually had an outlier money transmission statute that
needed to get fixed. And thank goodness it did. And then the

legislators saw an opportunity to welcome an industry by just
simply giving it legal status. It’s pretty simple what Wyoming

did. We just said hey bitcoin is property and we defined it
under commercial law and created a roadmap for judges and

parties to transactions to know exactly what their rights and
obligations are under the law making it backwards compatible

with the legal system. And in fact actually a very important
event is about to take place later this week which is the

Uniform Law Commission in the United States which recommends
laws to the states. The states are actually the primary

governmental unit in the United States. A lot of folks lose
sight of that is not the federal government but especially with

commercial. A lot of states control that. And there is an effort
to actually take the concept of what Wyoming did and make it

broad. You ask the question who’s followed Wyoming. A handful of
states have early adopted that Uniform Law Commission proposal

Texas Arkansas and Nebraska so far. And and what I would
recommend to other states is early adopt that proposal if you

don’t. The plaintiffs lawyers are coming and your court system
is going to get all tied up gummed up with with litigation over

this because there’s so much money in this industry now. And the
right thing to do is just define what the legal status is. And

that’s what brought Wyoming to the table. And then the industry
flocked here because simply there was a definition of legal

status.
Man the American West leading the way. I love it. But somehow we

only have about three minutes left. We do have a question from
the audience that I want to show you to all of you. And that

question is what major catalyst in your opinion will take the
crypto acid industry to its next level of maturity and adoption.

So we’re gonna do another rapid fire. Nick I’m going to shoot
that question to you first. What’s the next major catalyst.

If I had to guess a major central bank acquiring Bitcoin on a
par with its gold reserves looking at the share of gold it owns

and acquiring that proportional amount of bitcoin in order to
hedge the monetary transition that’s coming here.

Any guesses on what central bank that could be.
I would look towards the ones that are divesting themselves from

dollar assets and buying gold and indicating an openness to
alternative monetary regimes which is many of them.

I would look towards the ones with sovereign wealth funds with
mineral funds look to the ones that can easily turn energy into

money through bitcoin mining.
All right. Fair enough Michael. Same question. Next major

catalyst.
I mean the major catalyst would be a spot ETF for Bitcoin. Fair

value accounting for four bitcoins and FDIC guidance to allow a
bank to hold bitcoin without a 100 percent reserve ratio.

When do you think we could see a spot ETF approved in the US.
I can’t speculate. I just think those are the kind of trade.

Yeah OK. OK fair point. Caitlin. Same question. Next a major
catalyst that’s gonna take the crypto industry to the next

level. I would say it doesn’t need one but two to respond to
what Michael just said. It’s so interesting though that

regarding the FDIC and allowing banks to hold bitcoin on balance
sheet all boy that’s putting some serious risk if that does

indeed happen right at the core of the financial system is
fascinating to me that it used to be that you tried to keep risk

out of the FDIC. And now the discussion is to bring all this
risk into the FDIC and have levered banks holding Bitcoin. It

goes back to the early proposal or early observations about
Bitcoin potentially being an apex predator in the financial

system. So I would hope everyone’s cautious about that. But back
to your question there. I don’t think Bitcoin needs a catalyst.

And to me price is at least interesting aspect of it. All we
care about is that it keeps on truckin. And I’m very interested

in the tap root upgrade that’s coming for bitcoin very soon.
Just hardening that technology. All we care about is that it

just keeps adding blocks and all of these market structure and
bank and an ETF discussions all have to do with price. But at

the end of the day as long as the core bitcoin block chain is
still adding blocks then bitcoin is just fine.

All right. We’re going to leave it there. Great discussion guys.
Thank you so much. Michael Nick and Kaitlin great to talk with

you today. Really appreciate your time. That was just the first
panel of the Bloomberg Innovation Summit. We have a great day

coming up so please stay tuned. And thank you to everyone who
took the time to watch today.