Coinbase Summit Notes: This is the first institutional cycle, and the real demand for ETFs has not yet emerged

Written by Yano, Blockworks

Compiled by: Ismay, BlockBeats

Editor's note: At the Coinbase STATE OF CRYPTO SUMMIT, Blockworks founder Yano attended the meeting and shared some meeting notes on his social media. These financial OGs discussed topics including intergenerational wealth transfer, economic freedom, and the surge in institutional investment. In addition, the regulatory group analyzed the challenges and improvement directions of current regulations and emphasized the importance of interaction with the industry. The consumer group looked forward to the broad application prospects of cryptocurrencies. Special guest Mark Cuban spoke frankly about the unique regulatory dilemma facing US crypto companies. The specific content is compiled as follows:

After spending a day at Coinbase’s Crypto Summit, which was attended by many pension funds, endowments, brokerage firms, asset managers, banks, etc., I came away feeling very optimistic.

I took notes during some of the talks and now I share them with you:

Brett Tejpaul (Head of Institutional Division) opens the session

• There is a massive generational transfer of wealth going on ($70 trillion) from the older generation to the younger generation. 90% of the younger generation is frustrated with the financial system.
• One-third of the world's top 100 hedge funds have joined Coinbase.

The first panel discussion was attended by Alesia Haas (Coinbase CFO) and Samara Cohen (CIO of Blackrock ETF/Index Investing)

Great panel discussion, probably my favorite. Took lots of notes.

Samara:

• Five years ago, they were recommended to create a Bitcoin ETF, but they said it was not necessary. Now the demand for Bitcoin from institutions has forced them to create this product.
• Today, 80% of their Bitcoin ETF is purchased by self-directed investors who buy through self-directed brokerage accounts…but there is still a lot of institutional capital pouring in.
• Financial advisors remain cautious, but that's their job.
• Cannot comment on Ethereum ETF as there are active applications.
• Also excited about tokenization…Demand for tokenized funds (tokenized short-term Treasury bond funds) is coming from crypto-native companies that do treasury management.
• We saw the digitization of every asset. Now we will see the tokenization of every asset, that’s obvious.
• Tokenized Treasuries should not compete with stablecoins. Stablecoins are for payments. Money market funds are a liquid investment strategy.
• A few years ago we thought private permissioned blockchains would lead, we now realize that public blockchains are better so that we don’t fragment liquidity.
• Cryptocurrency has a branding problem. RWA means something completely different in the banking world, and it also implies that cryptocurrencies are not real-world assets and that the term "RWA" needs to stop being used.

Alesia:

• 40% of institutional clients adopted more than 3 products in the first quarter.
• Net inflows of $12 billion in three months were the fastest in history.
• Both Coinbase and Blackrock have many customers waiting for regulatory clarity.
• Is Coinbase supporting Trump? We are here to support the 52 million Americans who hold crypto and can vote how they wish.

Regulatory Group

@iampaulgrewal

Coinbase conducts many of its activities through litigation, and today we finally saw some progress in Congress.

Simon O'Brien, Abu Dhabi Global Market (ADGM)

• We entered this market in 2018/2019 and our investor community would be angry if we got it wrong. We published the rules and not much has changed since then. It is important for regulators not to always change the rules but to keep improving them.
• There are risks for regulators who change the rules every 12 months.
• The only way to develop good regulations is to interact with industry.
• The mistake regulators made was to establish regulatory rules but not have a good operating team and sufficient funds.

@joshualipsky

• Four billion people are heading into election season.
• Cryptocurrency is high on the agenda and will remain high.
• There is a new understanding that cryptocurrencies will become part of the global economy.

Lisa Cameron

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

Great conversation with @brian_armstrong and @CathieDWood

• This is the biggest economic revolution in my lifetime. It's as big as artificial intelligence, and there will probably be a convergence of cryptocurrency and artificial intelligence.
• Economic freedom is the foundation of global progress. We want to increase economic freedom around the world.
• Our biggest hurdle is regulatory clarity.

Brian just got back from Washington, DC: the Senate is keen to move forward with cryptocurrency legislation.

• The power struggle between the CFTC and the SEC, where we believe investment contracts are securities and tokens are commodities, requires Congress to step in and take action.
• Retail led the industry, but now institutions are joining in.
• 56% of Fortune 500 companies are working on on-chain projects.
• Regulatory clarity will drive institutional investment from 1-2% to 5-10%.
• Cathie said that the flow of the ETF is mainly from retail because the platform has not yet been approved (interestingly, this is the same as Blackrock).
• We haven't seen real demand for ETFs yet because Morgan Stanley, UBS, etc. haven't started pushing it yet.
• Brian said the most exciting thing about the company is Base. Also exciting: derivatives and our smart wallet (easier to get started).
• Cryptocurrencies started as an asset class and are now moving towards real-world utility.
• CEXs will be nice for a while, but they are a moment in time. Eventually it will be one-to-one, no intermediaries, all on-chain.
• Coinbase is in the process of moving our products on-chain.
• Payments are like water, they flow to the path of least resistance.
• We want to be adjusted EBITDA positive in any market, which means a shift away from transaction fees and toward subscriptions and services, which are more predictable.
• We are investing in innovation while reducing costs.
• The last big piece of the puzzle is international expansion. 17% of revenue today. We chose 10 markets. "Go deep into the market."
• International markets grew faster than the U.S. in the first quarter.
• Then we have our “broad” strategy with self-hosted wallets.
• There is a group of people growing up today who will never have a bank account, their phone is their wallet.
• Coinbase as a company will not disrupt a large company like Visa. But the protocols we build and contribute to can do that.

Payment Panel Discussion

With St. Jude Hospital, PayPal, EY, Google, and OpenAI. Didn’t take notes, sorry.

I had lunch with @RichJWidmann though and it was astounding how serious Google is about crypto, which I feel is overlooked by everyone.

CIO Perspective

Another contender for best panel discussion

Sebastian (Coinbase Asset Management)

Coinbase: This is the first real institutional cycle

• As an industry, we have invested $50 billion in venture capital... and hedge funds are next
• There is still no uniform valuation standard due to the lack of regulatory standards. It is still a very inefficient market, so the conversation about valuation is difficult.
• RWA is a bad term
• Eventually you will have 100% crypto exposure because the crypto rails will operate underneath all assets
• Every pension has a DAWG (Digital Asset Working Group), it didn’t work well before, this is a second chance. It hasn’t gotten the green light for a second chance, but it’s close. People won’t do it in 2024, everyone will do it in 2025

Matt Halstead (Teachers Retirement System of Texas)

• There are many aspects to cryptocurrency, it is just the format and standard by which transactions are circulated
• Cryptocurrency is a fusion of communication networks and financial networks
• Allocating funds to emerging technologies is not controversial, but people are skeptical about cryptocurrencies because of brand issues.
• The conversation about whether crypto will go to zero is not the right question. The question is if it happens, how much liquidity there is and how fast it happens. I have 10x upside potential that I can bet on massively and my downside is 25-50%. There is no such opportunity in the world. Institutions will realize this. This is a rare trade of a career.
• Tokens are being lumped in with cryptocurrencies, which are being lumped in with Bitcoin, and people don’t like that because the industry is being branded very badly.
• The biggest challenge is that institutions are segregating funds based on outdated advisors and portfolio structures from years ago.
• The discussion about people using cryptocurrency misses the point. All of this will be handled by AI agents. We are building for a future world we cannot predict.
• 5% adoption in five years, 100% adoption in the long term

Blue Macellari (T Rowe Price)

• Bitcoin is the first thing people come into contact with, but it is also the most difficult to understand. Let’s start with the most difficult part.
• ETFs bring the conversation mainstream
• If You’re Not Buying Crypto, You’re Short the Market
• The conversation has shifted from “why do we do this” to “how do we do this”
• Does a 1% allocation make sense? Not really. It's an arbitrary number. It should be more than 1%. Maybe 3, maybe more. It's a psychological shift that people gradually adapt to, it's a bit of a paradigm shift.
• If someone says blockchain is great but tokens are a scam, that’s cognitive dissonance
• We still have people in our company saying it’s just a Ponzi scheme or it’s just for illegal activities. Then there are people saying it’s interesting but it doesn’t have cash flow so it can’t fit into the traditional framework.
• When Soros short the pound and caused it to collapse, did we sit there and say that was the end of the pound? Of course not.

@Matt_Hougan

• Institutions are over-allocated to risky investments, and now the focus is shifting to liquid assets
• Institutions are actually short cryptocurrencies because they can afford to buy, but they are not taking action
• On how to value Bitcoin: Bitcoin provides a service. It is a wealth storage service that does not rely on the government or existing institutions. It is no different than any company. It is a service. The more people who need this service, the higher the value.
• We have 20,000 meetings a year. Our most common slide was "Crypto, not blockchain" and it hasn't been used in years, which is progress.
• We used to talk about 1% allocation, now we are talking about 3-5%
• Many people start with venture capital because of career risk or they don’t know how to do due diligence on tokens, and illiquid and liquid returns will start to diverge

Consumer Group

@benleventhal + @sid_coelho + @js_horne + @lay2000lbs

Didn't take notes because I was too excited for Pleasr's album release party, but this panel was great.

Special Guest Mark Cuban

@mcuban told attendees at @coinbase 's State of Crypto Summit that he's telling Senators, Governors, and Representatives that the problem for US crypto companies is the @SECGov registration process.

Cuban called it "a uniquely American @GaryGensler problem."

Final panel: @WileyNickel and @faryarshirzad

I only caught the end, so I didn't take any notes.

end

[Social media] looks doom and gloom, and the mood is low, but I tell you, if you were at this event, you would realize that this is the time to regroup again, and Phase 3 is just around the corner.

Big thanks to @CoinbaseInsto for hosting this awesome event. Hope my notes aren't too bad :)