Tech v. Currency
Are you in it for the tech or for the currency?
Back in early ‘21 bitcoin rallied from 28k to 41k and back down to 28k in just a few weeks. It was a nasty open for the year. When we pulled back to 29k or so, I had a chat with a co-worker at Trading Technologies (TT) about bitcoin’s future. He was locked in 100% on price and adamant about it going to the moon. It’s going to be a titanic shift in generational wealth. I wasn’t sold. Said I was long the tech, but skeptical of the price. Ate a bunch of crow as the price quickly moved up to 65k before pulling back and rallying again. Now we’re below that 28k threshold again. Was I right? Was he right? I have no idea. Could make a call on that today and it may be radically different in six months.
Several months after that debate I moved on from TT and joined a crypto tech start-up. I’ve since moved on from there and am looking to join another one (ping me if you’re hiring), but the tech…you just gotta be long the tech. I’ve seen and learned about some phenomenal protocols over the last months. Some of it’s taking our well-based TradFi protocols and giving them a refresh while some are new approaches altogether.
The DOV movement is fascinating. When I first heard talk of structured finance in DeFi, I flashed back to days working at a Commodity Trading Advisor (CTA) and offering structured notes. We ran overlay strategies at that CTA and I know all about the world of covered call strategies. Crypto is running with these trades like gangbusters. Something new and something old, I suppose.
I’ve worked with tech in crypto that is advancing TradFi practices. Taking a novel approach to adding efficiency in the OTC space. OTC in TradFi is ugly. While at TT I spent an unbearable number of hours working with our engineers on getting that UI and flow correct. Countless hours face-to-face with end-users wading through innumerable nuances on OTC practices across exchanges. TradFi OTC is that massive Jenga construct that just gets soo large and unwieldy that you refuse to take it down.
Back in early 2018 I was with TT when they added Coinbase. I had a long talk with folks about why TT would even do that. What was the value? Where’s the demand? We went down the rabbit hole and looked deeply at where the value was. Even a cursory glance at bitcoin would lead you to its backbone, blockchain. The whole currency replacement argument was fascinating, but the tech…I saw right away that the blockchain tech had teeth. Blockchain holds clear and present value for capital markets.
I’ve done a few turns through middle and back offices in the capital markets space and those avenues are not pretty. The inefficiencies are glaring enough that it’s somewhat laughable. Trade settlement is horrendously slow. Margin management is dangerously poor. Record keeping is antiquated and shockingly opaque. That area…shady records…feeds the great beast of securities lending and its monstrous cousin rehypothecation (see Caitlin Long). It was clear that blockchain could clear many of these issues. I vividly recall speaking with co-workers at that time and ringing the bell for Future Commission Merchants (FCMs). Their role as gatekeepers for futures trading was to be culled down to nothing more than sales. What Sam at FTX has been pushing… real-time margin management..his play has been obvious for years and it’s good to see an active debate on more efficient margining.
The bigger the ship, the harder it is to turn. There’s no doubt that Wall Street is making that turn toward greater efficiencies. It’s going to take time but we can all sense the growing urgency and growing momentum. Without a doubt, these are the most exciting days I’ve seen. Looking forward to what comes next and am happy to read your thoughts.