Jeff Dorman discusses digital asset investing at Arca

0:21of all could you give some background on your expertise in traditional finance and cryptocurrencies and then how you're applying that to the investment management at ARCA sure yeah I've spent a little under 20 years now in my career in and around finance and technology so I started my career as an investment banker at Lehman Brothers from there I went on to the trading desk and I was a

0:43trader of high-yield and leveraged higher bonds and leveraged loans at Merrill Lynch and then I went to the buy side I worked for Citadel as well as a couple other smaller hedge funds always managing debt equities in pretty much pretty much every asset class in every region around the world in some capacity up until about 2013 I did that so as the first 13 years of my career and then I

1:09moved on and I helped build a FinTech company called harvest exchange which was a service provider helping in the asset management industry so I basically went from the investment side to the service provider side but I've been in and around asset management technology my whole career in terms of applications of that to what we're doing now so I got

1:27into heading to crypto in 2016 when I made my first personal investment it was really just a hobby at the time I when I was building harvest exchange we had 10 full stack developers on our team and all of them were using it up every day a lot of them are mining for Bitcoin or light-color aetherium spike I learned a lot about open source code through them

1:46I learned a lot about you know open source code and how the developers were really thinking about building this new world with technology and that's when I started investing personally but I never really thought of it as more than a hobby or an investment until 2017 and 18 when I met my partner reins Steinberg who was the co-founder of WisdomTree prior to starting ARCA with me as well

2:10as Phil Lew who is one of the best securities lawyers in the industry he was very interested in blockchain and what it means for the new world finance that's when we that's when I really brought this together as a career and not just as a hobby and you know we come at it at ARCA slightly differently maybe than some other people this industry a lot of the grassroots part of

2:32blockchain and crypto have been developers and coders who are now learning how to do finance on top of the technology that they understand we come out of the other way which is where finance guys we're all guys who have done this before in finance and we think we can apply everything that we've learned in Asset Management from a regulatory standpoint from a compliance

2:53standpoint from a risk management and fiduciary responsibilities standpoint and we think we can learn and apply that to the crypto space in the same way that you would with any industry that you learn from scratch that's great Jeff and with that said what is our COS principal investment thesis when they're deciding which investment products they're gonna

3:13be offering throughout the digital asset space sure our main goal at Blackrock is to be a full-service asset management firm that is focused on bringing people into the digital asset ecosystem and we do that through two channels we have investment products where we are actually giving investors exposure to the digital assets through investments so that can be investments

3:35in tokens and crypto currencies themselves that can be investments in the equity of blockchain companies but basically giving investors exposure to this asset class as an investment then the other side of our business is we're actually using the blockchain underlying technology to build the infrastructure of new investment products so in this instance out of the business called ARCA

3:57Capital Management we're just using blockchain as the wrapper in the same way that an ETF is a wrapper the ETF itself didn't invent anything new it just made investing an existing asset classes easier more efficient and cheaper we think the blockchain wrapper is going to do the same thing and it's going to give investors better access to equities and fixed income and real

4:17estate and hard assets that in other ways has been harder to access or harder to transact so the goal of ARCA is really to have a full we dove investment products that has different risk and return profiles for different investors so that eventually any investor of any size retail and institutional can have a product that fits their needs that's great Jeff and

4:40if you could elaborate a little bit more on the token side and those investment products do you guys just offer simply investments into Bitcoin or like top 10 maybe indices or even lower market cap coins where do you guys lay in that sure so on the ark investment management side where we have private funds that are only available to accredited investors

5:00and qualified institutional buyers we have actively managed funds where we have we're investing in different vehicles do with different strategies with different vehicles but the main flagship strategy that we invest out of this the architectural assets fund where we have long only event driven research driven approach to investing in this so we invest Bitcoin is one of the

5:23investments but we'll really look like we'll look at anything and we believe has a fundamental reason for existing and has a token that actually a Creek's value as the company or the part of the project grows okay and what would you say is the main differentiator between ARCA and some of the other investment management platforms that are now entering the digital asset space

5:45well like I said before ARCA is a group of financial professionals in addition to myself and rein and Phil we have a whole team of ex financially minded people so anything from we have a KPMG X international M&A banker we have lawyers we have venture capital analysts and then we also have people who are crypto native and developers and really the software but the biggest differentiator

6:12is that we've all done this before we've done this in other asset classes we've done this with other products and we really take that approach which is compliance first regulatory first doing this in the same way that we've done other products in our career across equities and fixed income and real estate and everything else and just applying it to this new asset class so

6:31you know the underlying strategy there's hundreds of firms out there's certainly different types of strategies and you know some are better than others certainly not here to tell you who's good and who's not or what the real you know all the nuances of those differences but I think where ARCA comes out is we want to make investors comfortable and we do that because we've

6:53done this before and we know how to do it in this space as well that's great and now recently the SEC came back to ARCA and had rejected the bitwise ETF which is one of the Bitcoin ETFs that has been in the works for a little bit here could you give your opinion on why this was rejected I've read that you know they were saying Bitcoin has a lot

7:15of fake volume so that was part of the reason they decided that but what's your opinion on this ETF did they make the right decision and how would how was that going to affect the Bitcoin and the cryptocurrency space right now sure and just to clarify I think he said they came back to Erica they didn't come back to our target has nothing to do with this ETF but in terms of what they did

7:35come back with I mean first of all I think the bitwise team has done an amazing job I think the research they've done the evangelism for this space they don't everything they've done it through great and that actually goes further than just bitwise that's to Vanek and everyone else in the space who have been trying to push this through but my personal take is that it probably made

7:54sense to be rejected right now I don't think the market is mature enough yet all of the factors that bitwise used in their research report to help the SEC get comfortable with the 5% of the market that was not faked and manipulated was great but the SEC clearly focused on that other 95% that does have fake volumes it does have watch trading that does have you know

8:16price manipulations driven by a handful of people on so I think it makes sense right now for the for the SEC to reject this until these clarifications are done until they're more comfortable with it but there's also important to remember that the market doesn't need an ETF right the only people who benefit from an ETF are financial advisors who have

8:38very specific mandates rules around what investments they can put their clients and the reality is anybody can go buy Bitcoin right now you don't need an ETF to do that so you have this chicken and egg scenario where these crypto with crypto built so that we can fit into the traditional legacy system or is crypto supposed to be a way to get away from the traditional legacy system

9:00if you believe the latter you don't need an ETA if you believe the former then you know I think ultimately this market needs an ETF in order to do that but I'm in the camp that eventually the financial advisors will learn how to put their client into Bitcoin the way the rest of us are doing it and not need a legacy tool in order to do that very great perspective Jeff

9:22and that also leads me to think about the backed ETF which was recently approved and to most people in the crypto space they saw what they thought was a lackluster performance on its first day seem like I know a few dozen Bitcoin were traded through it and people of course we're hoping you know it was going to take Bitcoin to the moon or something spectacular was going to

9:43happen but that didn't really work out but it looks like it's growing now do you have any thoughts on the approved ETF and is that one enough or eventually these bitwise and Vanek ETS will come in and do that does that make a difference well so I was back to think you're referring to their futures platform not not an ETF but yeah I think that's new Beck's new initiative first of all

10:08has the backing of a giant in the industry right NYC and ice has done this before and it's done in massive size and is one of the most trusted counterparties in all finance so it's a bet against them I think would be foolish as well as short-sighted to do it only after a month or two of initial rollout in general people in crypto I think have unrealistic expectations of

10:31how long things take it's really hard to build new products it's really hard to add more clients even if you have been doing it for 10 20 50 years like a back whether like an NYC ice or even like a fidelity it takes time I mean it takes customers a long time to get comfortable with something new and most institutional investors are not going to

10:51rush into anything until they see some until they see some progress so I wasn't expecting this to be you know guns blazing it bright outlook right out of that I thought it would take some time I think a lot of customers are have done their due diligence and they're going to start their onboarding process once they see how it works and you know six 12 18

11:10months from now you're gonna see some some real growth there but I definitely I think a lot of the issues in crypto right now are based on these unrealistic time frames and these unrealistic expectations and I think it's time to walk those back a little bit and understand that the institutional world doesn't work like the retail world you know this isn't a consumer product where

11:28you hear about it from a friend you sign up and immediately you're using it takes a long time for institutional investors to do anything because they have a responsibility to their clients which other customers or to their fiduciaries in this certain aspects to make sure that it's cool definitely and there's definitely a lot of Education that's needed around the space and

11:49especially trying to incorporate traditional finance with cryptocurrency and a lot of people in cryptocurrency aren't educated on how the traditional finance system works and they're trying to you know learn that as well so for your clients have you guys incorporated a level of education into these new digital assets because a lot of people don't understand the nature of them and

12:11it really is an entire new asset class so how are you guys adding an education aspect into the products that you provide and the investments that you make yeah an education really is key hit it on the head I mentioned my partner range Steinberg who's our CEO and our con also was a co-founder of WisdomTree and a lot of people just think ETFs popped up kind of overnight and they

12:33didn't it took seven to eight years between getting exempt of Hurley from the SEC as well as having investors understand how the product worked to the distribution and marketing of them so it takes time and it takes education and then eventually it becomes mainstream you don't realize that there's that backstory or there's a history behind it and I think digital assets are the same

12:50thing if you really anybody in this space who is trying to grow the industry has a obligation to help educate new investors into the space because I don't know a single person who start in this space and understood crypto right away and said yeah I got it let's go most people you know we're skeptical at first they said this doesn't make sense or I don't understand what you're doing and

13:10then eventually they spend enough time reading and learning and talking to people that they understand that this really has a incredible use case and it's going to be transformational across the next couple of decades in terms of finance and money as well as just asset transfer so what we do at ARCA is we do a lot of events and content for different groups of people

13:33so we have a podcast called baselayer that my partner david nage runs which is inviting leaders in the crypto ecosystem to discuss their products and their projects and what they're doing to help family offices and institutional investors understand what investable assets are out there we do a weekly blog called that's our two satoshis that you can get on our website which is not

13:57getting into the nitty-gritty of how blockchain works or how the technology works but comparing blockchain and crypto as an asset class to traditional asset classes like fixed income and equities where investors are more comfortable we also do periodic conferences and events or small groups of institutional investors we do monthly investor letters for our funds we do

14:17webinar is to discuss macro landscapes as well as developments in the ecosystem and we found that the open rates on some of this content is higher than you ever believed in the 7080 sometimes even 90% range which shows you that investors do care about this space they really are interested and they really are willing to learn they're just not necessarily

14:37really ready to allocate yet and again going back to patience and unrealistic expectations I think there's a lot of people in this space you think that if you meet an investor in a coffee shop for 30 minutes that they're gonna write a check to you before they leave the room and the reality is it's gonna take 18 to 24 months of real due diligence in this space to not only understand the

14:58the investments but understand who are the service providers and how does you know how does blockchain even work where the managers in this space so in the traditional world I remember you know let's say let's say a pension fund or an endowment has a mandate to invest in a long short equity fund it may still take 12 to 18 months before they do their

15:20managers search and figure out who they're going to invest and that's when they already know exactly what equities are and they know they have a mandate for long/short equity well imagine that same 12 to 18 month process of manager due diligence except every single manager you've never heard every single service provider you've never heard of you don't even safely know how to store

15:38digital assets and you may or may not even have a green light to invest in this new asset class so that's just gonna take time and during that time it's our job and everywhere else in the ecosystems job to continue that educational process it's great and we're definitely early days so what is our code looking for right now as they continue to grow are you guys

15:59looking for strategic partners more team members or just more clients sure I mean we're an asset manager and asset managers grow their business through new product offerings and ultimately through new assets under management so we are always looking for assets into our various products but you don't get assets into products without having a strong team so we're always looking to

16:20hire good people whether that's people who are more software and development focused for people who are business development focused or people who are investing focused we're looking for people who really cross that bridge between technology and traditional finance who want to bring digital assets into into the world with us great and how can they reach out and learn more

16:44information through on our website which is a RCA they can look at all the different product offerings as well as sign up for our blog and they can also reach out to us at info at ARS CA if they're interested in talking to us great thank you so much Jeff I'll leave those links in the description box below that's all the time that we have for this interview today but it's been a

17:07pleasure speaking with you and let's follow up in the near future likewise and thanks again for having me