Coinbase Summit Notes: Why Are Institutional Investors Confident in Cryptocurrency?

Author: Yano

Compiled by: Shenchao TechFlow

Spent a day at the Coinbase State of Crypto summit.

Many pension funds, endowments, brokerages, asset management firms, banks, and others attended the conference, and attendees left feeling very optimistic.

I took quick notes during some of the talks and would like to share them here:

Brett Tejpaul (Head of Institutions) announced the opening of the event.

• A massive transfer of wealth (70 trillion dollars) from old to young. 90% of the younger generation is disappointed with the financial system.

• One-third of the top 100 hedge funds globally have already joined Coinbase.

First panel discussion with Alesia Haas (CFO of Coinbase) and b (CIO of ETF/Index Investments at BlackRock)

An excellent panel discussion, perhaps my favorite.

Samara:

• Five years ago, someone suggested creating a Bitcoin ETF, and they said it was unnecessary. Now, institutional demand for Bitcoin has forced them to do it.

• Today, 80% of their Bitcoin ETF is purchased by retail investors through their own brokerages, and the wave of institutional capital remains enormous.

• Financial advisors remain cautious, but being cautious is part of their job.

• Cannot comment on Ethereum ETFs as they are currently under active filing.

• Excited about tokenization; there is a growing demand for tokenized funds (tokenized short-term fund management) from crypto-native companies engaged in fund management.

• We are seeing the digitization of every asset. Now, we will see the tokenization of every asset.

• Tokenized government bonds should not compete with stablecoins. Stablecoins are for payments. Money market funds are a liquidity investment strategy.

• A few years ago, we thought private permissioned blockchains would lead the way. Now we realize that public blockchains are better, as they do not fragment liquidity.

• Cryptocurrencies have a branding problem. The term RWA means something entirely different in the banking world. It also implies that cryptocurrencies are not real-world assets. We need to stop using "RWA."

Alesia:

• 40% of institutional clients adopted 3+ products in the first quarter.

• Net inflows of 12 billion dollars in three months, the fastest growth rate in history.

• Both Coinbase and BlackRock have many clients on the sidelines, waiting for regulatory clarity.

• Does Binance support Trump? We support the 52 million Americans holding cryptocurrencies, and they can vote as they wish.

Payment panel with St Jude, PayPal, EY, Google, and OpenAI

Google places great importance on cryptocurrencies, believing that everyone is "asleep," and many seem not to pay enough attention to it.

Regulatory Panel

@iampaulgrewal

• Many of Coinbase's activities are conducted through litigation, and today we finally saw progress in Congress.

Simon O'Brien, ADGM

• Abu Dhabi. In 2018/2019, we got involved. We believe that if we get it wrong, our investor community will be upset. There hasn't been much change since we released the rules. For regulators, it is important not to keep changing the rules but to continuously improve.

• Regulators face the risk of issuing rules and then changing them every 12 months.

• The only way to establish good regulation is to engage with the industry.

• The mistake regulators make is to issue regulatory rules without a good operational team and sufficient funding.

@joshualipsky

• 4b entering election season.

• Cryptocurrencies are a top priority on the agenda and will remain high.

• People are realizing that cryptocurrencies will become part of the global economy.

Lisa Cameron

• Cryptocurrencies help those left behind by the financial system, and now cryptocurrencies are more important to politicians than ever.

Pleasant conversation with Coinbase CEO and Cathie Wood

• This is the biggest economic revolution of my life. It is as important as artificial intelligence, and cryptocurrencies and AI are likely to merge.

• Economic freedom is the foundation of global progress. We want to increase economic freedom worldwide.

• Our biggest obstacle is regulatory clarity.

• Brian just returned from Washington: the Senate is excited about advancing cryptocurrency legislation.

• The turf battle between the U.S. Federal Financial Commission and the SEC; we believe investment contracts are securities, and tokens are commodities. Congressional intervention and action are needed now.

• Retail investors led this industry, but now institutions are coming in.

• 56% of Fortune 500 companies are developing on-chain products.

• Regulatory clarity will increase the proportion of institutions from 1-2% to 5-10%.

• Cathie noted that the fund flows into ETFs are primarily retail funds, as platforms have not yet approved (interestingly, the same as BlackRock).

• We have not yet seen real demand for ETFs, as Morgan Stanley, UBS, and others have not started pushing.

• Brian said the most exciting thing about the company is Base.

• Also exciting: derivatives and our smart wallet (making onboarding easier).

• Cryptocurrencies started as an asset class and are now transitioning to real-world utility.

• Centralized exchanges will do well for a while, but it is just a matter of time. Everything will be peer-to-peer, with no intermediaries, and on-chain.

• Coinbase is moving our products on-chain.

• Payments flow like water, going to the path of least resistance.

• We want adjusted EBITDA to be positive in any market. This means shifting from transaction fees to subscription and service fees, which are more predictable.

• Significantly reducing costs while investing in innovation.

• The last big piece of the puzzle is international expansion. It currently accounts for 17% of revenue. We have chosen 10 markets to delve into.

• In the first quarter, international market growth outpaced the U.S. market.

• With self-custody wallets, we have a "broad coverage" strategy.

• A generation growing up today will never own a bank account; their phones are their wallets.

• While Coinbase as a company will not disrupt giants like Visa, the protocols we build and participate in can do that.

CIO Perspectives

Sebastian (Coinbase Asset Management)

• Coinbase: This is the first true institutional cycle.

• As an industry, we have invested 50 billion dollars in venture capital, and next is the participation of hedge funds.

• Due to the lack of regulatory standards, there is still no unified valuation standard, leading to market inefficiencies and making valuation discussions difficult.

• RWA is a terrible term.

• Ultimately, all assets will rely on crypto rails, fully exposed to crypto assets.

• Every pension fund has a Digital Asset Working Group (DAWG); although the first attempt was unsuccessful, this is a second chance. But it’s fast; full adoption is expected by 2025.

Matt Halstead (Texas Teacher Retirement System)

• Cryptocurrencies are just that. They are merely a form and standard of moving things.

• Cryptocurrencies are a merger of communication networks and financial networks.

• Allocating funds to emerging technologies is uncontroversial, but due to branding issues, people struggle when using cryptocurrencies.

• Discussing the issue of cryptocurrencies going to zero is incorrect; we should focus on liquidity and speed. Cryptocurrencies have ten times the upside potential and a 25-50% downside risk; such opportunities are extremely rare globally. Institutions will realize this.

• Tokens are often conflated with cryptocurrencies and Bitcoin, damaging the brand image.

• The biggest challenge facing institutional investors is outdated advisors and portfolio structures.

• A 5% adoption rate is expected within five years, with a long-term goal of reaching 100%.

Blue Macellari (T Rowe Price)

• Bitcoin is the first currency people encounter, but it is also the hardest to understand; we start with the hardest.

• ETFs have brought cryptocurrency discussions into the mainstream.

• Not buying cryptocurrencies is akin to shorting the market.

• The conversation has shifted from "why do this" to "how to do it."

• A 1% allocation is unreasonable; it should be higher, possibly 3% or more. This requires a psychological adjustment; it is a paradigm shift.

• If someone says blockchain is good but tokens are a scam, that is cognitive dissonance.

• We still have people internally saying this is just a Ponzi scheme or only for illegal activities. Others find it interesting but say it has no cash flow, so it cannot fit into traditional frameworks.

• When Soros shorted the pound, leading to its collapse, we did not think it was the end of the pound.

@Matt_Hougan

• Institutional investors are over-allocated to venture capital; the focus is now shifting to liquid assets.

• Institutions are essentially shorting cryptocurrencies because they have purchasing power but are not actually doing so.

• Regarding how to assess Bitcoin's value: Bitcoin provides a wealth storage service that does not rely on government or existing institutions, just like any service offered by a company. The higher the demand, the higher the value.

• We hold 20,000 meetings a year. The slide "cryptocurrency is not blockchain," which was the most used, has not been used in years; this is progress. The slides we use now have not been used for years. This is progress.

• In the past, we talked about a 1% allocation. Now we are discussing 3-5%.

• Many start with venture capital due to career risk or because they do not know how to research tokens. Illiquid and liquid returns will begin to diverge.

Consumer Panel

@benleventhal + @sidcoelho + @jshorne + @lay2000lbs

Special Guest Mr. Mark

(See tweet for details)

The last panel of the day

Including @WileyNickel @faryarshirzad

Despite the gloomy market sentiment, the reality is not so pessimistic. Those who attended recent events will realize that now is a great time to buy quality tokens at low prices, as the third phase is about to arrive.