The Real Vision Crypto Story: Understand the Future of Everything (w/ Raoul Pal)

BlockFi serves both retail and institutional clients; institutional clients typically require high-touch, educational services (explaining Bitcoin storage vs. equities vs. gold, educating on risk), while retail clients are more sophisticated and higher net worth than the average investor.

“what we've seen is a lot of a lot of our clients um need hand-holding they need high-touch service so yes obviously web platform it's a bit all about obviously in the time of code it's about digitalization uh it's about having high throughput stp straight through processing but at the same time there's still a human element”

The OCC (U.S. Office of the Comptroller of the Currency) has recently ruled that banks can custody Bitcoin and digital currencies, providing regulatory validation for banking services in crypto.

“the occ has recently said that uh that a bank can actually custody bitcoin and digital currencies and so you know and and by the way theoretically that would include more than just bitcoin right and so back to your question um any one of those digital assets can can be custodied”

Cryptocurrency is being adopted for real economic use cases including payroll and trade finance in emerging markets, particularly South America, where stable coins and Bitcoin offer advantages over volatile local currencies.

“the one thing that we have in terms of actually buying and selling goods or paying for services in crypto we're hearing it's happening in south america um that payroll is being done in bitcoin um and things and things like that and we've been asked hey can you finance this payroll for us can you take it you know uh and that's you know and that's so that's you know so we sort of see the cutting edge of financing uh in cryptocurrency”

Real Vision published its first Bitcoin video in 2014, with Rao Pal explicitly framing crypto and macro finance as two worlds that would eventually merge, anticipated to occur during the next major recession when traditional monetary policy tools would be exhausted.

“real vision's first bitcoin video i believe was in 2014 our second video uh ever and here we are today”

Digital currency technologies (both crypto and CBDCs) will make it harder and eventually impossible for governments to implement capital controls or other restrictions on global trade.

“i mean i think i think it's gonna be harder and harder for uh governments to put in place capital controls or other things um you know that stop that stop global trade frankly i mean we you know we see the use of of of digital currencies um of stable coins you know cross-border in places where there are capital controls um and so that you know it's not going to be enough it's not going to be an option anymore”

In banking, the optimal role is to help customers solve problems and then 'get out of the way' to allow them to build their businesses, rather than trying to influence their strategic decisions.

“i've been in business banking for almost you know for for almost 40 years and um i believe that our role is to help our customers but then get out of the way and let them build their business and so we're not going to try to influence we're just going to try to be there for them”

Rao started investigating Bitcoin and blockchain in 2012 after witnessing the near-collapse of the European banking system and realizing that existing financial solutions were inadequate, initially exploring creating a bank with no fractional reserve lending.

“i was in spain in 2012 when we almost lost the banking system across all of europe and i realized that we had no solutions and i started looking around at creating the world's safest bank a way that had no fractional reserve lending”

The financial world is changing from soup to nuts with transformations in central bank digital currencies, how we think of securities, how we own things, how we borrow things, and how we lend things, all happening at warp speed.

“the financial world is changing from soup to nuts everything we know is about to change whether it's central bank digital currencies how we even think of securities how we own things how we borrow things how we lend things everything's changing and it's kind of at warp speed”

Silvergate's Exchange Network has processed $100 billion in lifetime transaction volume since its 2017 launch, with $76 billion of that occurring in 2021 alone, and $36 billion of the 2021 total occurring in Q3 2021, demonstrating accelerating institutional adoption.

“we announced last month that the sen life to date we launched it in 2017 life to date we've had a hundred billion dollars of transactions across the sen what's really important to understand though is that 76 billion of that 100 billion was this year wow okay and and 36 billion of that 76 billion was in the third quarter so you you can really kind of see with that what what the what the growth trajectory is”

Central bank digital currencies (CBDCs) will accelerate rather than hinder private sector crypto innovation and investment, as they highlight the usefulness of blockchain technology and will drive more capital and development into the space.

“i think it's about technology and i you've hit the nail on the head and that bitcoin isn't technology it's also it's also a store of value and a reserve you know in a reserve currency in a way so what um you know central bank digital currencies will do will highlight the usefulness of the technology um and that will mean there will be more investment in the space uh not less you'll see some you know from the macro perspective you'll see democratization of capital”

The crypto and fintech ecosystem is in the parking lot waiting to enter the game; institutional adoption is just beginning and will expand dramatically as PayPal, messaging services, and other major consumer platforms enable crypto payments, making transactions more ubiquitous and efficient.

“if we're not even in the first inning we're actually in the parking lot getting ready to go into the game uh and so i think that we're going to see more pay pals come into the space uh you'll see more you know messaging services enable crypto payments as well it's just so much more efficient”

Silvergate serves as the bridge between traditional banking infrastructure that operates 40 hours per week and cryptocurrency markets that operate 24 hours per day, 7 days per week, 365 days per year, making it the first bank to bring weekly-only banking into 24/7 crypto markets.

“at silvergate we are the leading provider of innovative financial infrastructure solutions bridging the traditional banking system that only operates 40 hours a week to the crypto market that operates 24 7 365 and never sleeps and and so it may be that at some point in the future banks aren't going to be to be necessary but for some period of time there's going to need to be a bridge”

Traditional banking infrastructure is antiquated; as of 2021, physical bank visits and checks are still required for basic transactions like apartment deposits, with banks being closed on weekends and forcing individuals to take time off work.

“i just had to get a bank check uh for a deposit on my new apartment it's 20 20 and i physically had to walk down to a bank by the way in new york city all closed on saturday so i had to take time off of work it's just astonishing that how antiquated so much of the infrastructure is”

Governments will use expanded financial surveillance capabilities once they have them, similar to how Facebook and major technology platforms use behavioral economic tools and will not relinquish them.

“i understand that governments can have behavioral incentives now like china and that's different but then we're not going to let the genie back in the bottle either i mean no government is going to have that opportunity and not use it in the end it's like you know facebook discovering the magic of behavioral economics as well they're never going to put it away”

Bitcoin and blockchain technology solve structural problems from the financial crisis including asset custody, ownership recording, and fractional reserve lending risks through decentralized systems that don't require trust in a single institution.

“i realized that the answer probably lay there for everything you know how we can custody assets how we can record ownership of assets all of the problems of the financial crisis so many could have been resolved by this”

Silvergate is referred to as 'crypto's bank' in industry terminology but was concerned that not having a formal partnership with Real Vision would constitute a public relations failure given its central role in the crypto ecosystem.

“we've been referred to as kryptos bank and it would be a real shame if silvergate didn't have um or you know a partnership role with with you all at real vision”

Silvergate is involved in conversations about interoperability between central bank digital currencies and is deeply engaged with all U.S. regulated stablecoin projects, positioning the company at the epicenter of emerging digital currency infrastructure.

“there are a lot of questions about interoperability you know is this going to be government only is there going to be a government you know a a public private type of partnership uh we're um part you know we're involved in the conversations and uh we're also involved with all of the u.s regulated stable coin projects all of the um the the state the dollar-backed stable coins that are issued in the u.s um actually go through the sen and go through our api and and so um we're we're right at the epicenter of this”

Privacy in traditional banking is already minimal; every transaction outside of cash is recorded and tracked, and most jurisdictions have severely restricted cash usage (e.g., some European countries now have €200,000 cash limits), so the privacy 'being taken away' by CBDCs is not being taken from a baseline of privacy.

“but basically every single transaction in every way you do apart from cash is recorded and cash in europe for a long time now has been reduced down to you know in some countries now it's like 200 000 euros worth of cash you can have so we don't have that privacy and we're on facebook and google and mobile phones and everything and we don't have privacy so i'm kind of like you know we don't really have it anyway”

The U.S. Treasury and potentially Congress are considering reducing the transaction reporting threshold from $3,000 to $250, which would represent a massive expansion of transaction-level financial surveillance.

“and in fact vincent just just came out with uh you know with with essentially a question should we draw should we reduce the um transaction reporting threshold from three thousand dollars down to two hundred and fifty dollars that's a huge move”

Bitcoin is described as 'the most pristine collateral ever created' and can be custodied and used as collateral for lending products by banks.

“and we believe that as as um as rao has written bitcoin is the most pristine collateral ever created and uh the occ has recently said that uh that a bank can actually custody bitcoin and digital currencies”

PayPal's launch of Bitcoin purchase capabilities represents a significant milestone in mainstream adoption, with Alan Lane purchasing $100 worth of Bitcoin on PayPal and observing it appreciate to $117 within approximately one week.

“i do think it's inevitable and um but i think uh with with what private industry is doing i i mean i don't know how many of your viewers have have have purchased you know a lot of them probably bought bitcoin with you know on coinbase or gemini or kraken or bitstamp right but then that that consumer opportunity to buy it with the cash app on square and now with our robin hood for instance and now you can use paypal and by the way i try all of those venues because i want to understand how it works and i was really happy to see you know when as soon as paypal um let me in because i was on the waiting list so a week or so ago you know i bought a hundred bucks worth on paypal just because i wanted to try the experience and i left it there and i checked it last night and it was 117”

Digital currency dominance by stronger currencies (dollar) may create fairness concerns but represents a powerful platform opportunity for entities that can provide access to digital currency networks globally.

“it might you know it might not be exactly fair in terms of you know the dollar or some of the stronger currencies you know uh you know dominating uh but i think you know for for us being you know a platform that can provide it it's extremely powerful”

Crypto ecosystem participants have diverse views and beliefs about which projects/coins will win, and infrastructure providers like Silvergate and BlockFi focus on providing neutral platforms rather than picking winners.

“we have bitcoin maximalists we have the big blockers you know who uh uh you know with the bitcoin cash or bsv uh you know and then we've got the ethereum folks we got the folks that are really interested in defy and it really provides a lot of great conversation and stimulus um within you know within the team the fact of the matter is what we try to do is say you know what we don't know which one of these is going to win but as as rowell just said you're not putting the genie back in the bottle you're not putting the toothpaste back in the tube so our role is to not try to pick a winner but essentially to just provide the services that our customers need”

Real Vision's mission is to democratize the best financial intelligence, and the company realized it would be wrong to exclude the crypto and blockchain space from this mission given the scale of financial transformation occurring.

“if our mission is to democratize the very best financial intelligence it would be wrong of us not to have included this whole new world of finance in it because what's going on is absolutely enormous”

Digital privacy concerns with central bank digital currencies are driven by surveillance state concerns exemplified by China's digital yuan implementation, raising questions about whether the U.S. will implement similar surveillance mechanisms.

“you know obviously privacy is is of paramount importance and it's it's one of the kind of key structural questions that is being debated um on on the central bank digital currency concept right because with um you know with what china is doing for instance there's a lot of concern about the quote-unquote surveillance state and the fact that that um that the government is going to have have a view into every um you know every fiat um uh what what's that i'm drawing a blank on the on the on the currency in china um so but so digital one we'll call it the digital one there you go um every one you know they're gonna see that and so the question is in the united states are we going to have the same kind of surveillance”

Security in crypto has dramatically improved, with hacks on top exchanges and platforms now occurring at much lower rates than during the Mt. Gox era and other early high-profile breaches, indicating technology is advancing toward parity with traditional banking security.

“i think we've seen you know the hacks are now not on the mount gox level or some of the other ones that have been you know well known uh they're sort of diminishing and for the top you know top sort of exchanges and platforms have you know have you know knock on wood it's been it's been you know the technology is just advancing at such a fast pace uh that it really is becoming just like you know just like sort of the fiat banking system in terms of in terms of security”

Ethereum has experienced periods of high demand (during DeFi explosion), followed by diminished demand, while Bitcoin has recently experienced massive rallies, indicating coin-specific demand cycles.

“obviously we've got some stable coins we've added pax gold uh for people that want very cheap and efficient access um to reserve asset class uh we have the top coins available for our retail clients they can access them uh and i think you know for example obviously ether has been extremely popular recently uh you know due to due to the you know the defy explosion uh then you know that kind of dwindled down and now you've got bitcoin you know partic you know taking uh you know part of a massive rally recently”

The crypto industry is still in early innings despite growth, with many traditional bankers remaining hesitant to enter due to perceived novelty, unknown risks, and current global challenges.

“i still think we're early innings you know as you just mentioned with with your own experience and the fact of the matter is while more banks were coming into the space it is still a very challenging kind of ecosystem to get your hands around and i don't begrudge any banker for saying you know what i'm going to wait a while on that because it's too new there's a lot of unknowns a lot of risk and especially with everything that's going on globally right right now”

BlockFi provides collateral services accepting Bitcoin, Ethereum, Litecoin, and Pax Gold, with collateral offerings expanding over time based on institutional client demand and liquidity testing.

“yes yes we do i mean i think we try and cover as much ground as we can um and you know like allen we also have we have lots of different uh you know opinions and and within block fi and and different skill sets uh and believers and different parts of the crypto crypto ecosystem uh you know we we can't be everything to everyone but i think you know we try really hard to serve our clients in the best the best way we can uh obviously we've got some stable coins we've added pax gold uh for people that want very cheap and efficient access um to reserve asset class”