Frank Chaparro is a Crypto-Journalist currently at The Block, a global community for Crypto enthusiasts. He previously covered the intersection of Crypto on Wall Street in Business Insider.
In this conversation, Anthony Pompliano and Frank Chaparro cover the current state of Crypto Media, what it takes to develop sources, how you deal with sources who lie to you, what happened when the CFO of Goldman Sachs called Frank’s article fake news, and who the most important people in companies in Crypto are.
You can find the recording here: Off The Chain Podcast: Anthony Pompliano and Frank Chaparro
Anthony Pompliano: All right guys, here we go. We’ve got Frankie Scoops in the house today so let’s, let’s just get this thing popping right off the start. Thank you for coming.
Frank: Yeah, no worries. Pleasure to be here.
Pomp: We have gone back and forth on Twitter way too much, first time meeting in person. You’ve got more energy in real life than on Twitter, so I’m excited about this.
Frank: Big Scoop Energy, that’s what they call me.
Pomp: All right, so let’s go through your background. Most people don’t know that, how young you are and kinda how you got into the media side of Crypto.
Frank: Yeah. I am pretty young, which is surprising because of all of my mannerisms that would otherwise suggest that I’m like 60–70 years old.
But it all started in college at WFUV, I got into radio, got into telling stories, got into the news. First in politics, so going down to city hall, writing up stories on really bodontic city hall type things that really start to bore me after a while. I found a respite in writing about business news. There’s less sort of vitriol in business news in a sense. It’s funny that I ended up finding my way to Crypto because there’s ton of vitriol in Crypto.
But the thing that I liked about business was it was a lot less bull crap in a sense, a lot let less fighting back and forth. A lot more building things and figuring out how we can build things that people want to buy.
So I ended up finding myself at Nasdaq, as a marketing corporate communications intern. Really learned about capital markets for the first time, market formation, market structure, initial public offerings, the stock market. All those things that I really hadn’t been exposed to in my studies, because I was studying theology and sort of international political economy.
I fell in love with the best of part of my job when I was marketing at Nasdaq, wasn’t necessarily the job itself but waking up in the morning, reading the Wall Street Journal, listening to Bloomberg Radio. After that was done, I decided, this is what I wanna do. I wanna tell stories that will make an impact on Wall Street and in the business world. Had a great opportunity to intern at BI, which started out, basically they threw me into the wolf’s den. Covering whatever I wanted, talking to entrepreneurs. I think because of my sort of demeanor as a 60 year old trapped in a 23 year body. Or a 23 year old trapped in a 60 year old body. Thank God this is podcast and not television. ’Cause I have the face for the former.
I really was able to build a name for myself and quickly after a couple of months and especially after they brought me on full time. I mean, I was talking to people like the president of the New York Stock Exchange and the president, rather the founder of IEX. Massively important folks on Wall Street.
It wasn’t until I came on full time that they sort of said, “All right, we need someone to write about this Bitcoin thing.” And I said, “Bitcoin, Crypto.” I mean, I want to be taken seriously as a financial journalist. I don’t wanna write about magic internet money all day.
Frank: Their response basically was, “Well you’re gonna be writing about magic internet money all day because the things exploding.” This was right around May 2017, right after I graduated from Fordham and they needed someone to really pick up the coverage. Because the thing was exploding as far as impressions were concerned, in terms of the editors asking questions. I remember someone came to me at Business Insider at the time and said, “What is Ethereum? We need someone to write about what Ethereum is because the Google trend traffic is off the charts.” And it was off the charts if you remember, it’s down now along with the price. Really just dove into the thing. The rest is sort of history. But it was really accidental, in a sense, being at the right place at the right time. It was over the course of the next, I’d say six months, as the thing exploded, was finding a niche at the intersection of this crazy Crypto world and Wall Street. What are the people on Wall Street doing? At the time, they really underplayed it so we’re talking September, October, November, right around the time when Jamie Dimon called this thing a fad, right? I was thinking, all right but what are they doing with it? I thought the place that made the most sense to go to were the exchanges.
Because when we think about blockchain technology and where it can have the biggest impact obviously on capital formation, so the IPO process could be disrupted by something like an ICO or an, security token offering, an STO. Obviously trading can be impacting, you have things like decentralized exchanges that supplement matching, bringing together buyers and sellers.
So I wanted to see if they were positioning themselves places like NYSE, Nasdaq, CBOA, CMA, how they were position themselves to take advantage and monetize this revolution in a sense. At the time, I mean, no one really, they didn’t seem like they had an idea, right. We’re looking at it, we’re thinking about it, we look at all technologies.
But really, I mean now we know a year later, right. [crosstalk 00:05:41].
Pomp: They were all in.
Frank: They were all in and they were all in for a while, right. At the time when I was thinking about the impact that futures could have, Bitcoin futures on the market. I went to all the analysts who cover the exchanges. So the investment bankers, who are writing up stock report analysts for their asset management clients to see how they can, the ones that set the price targets, right.
Frank: Your listeners who might not understand what investment bankers some of them do. I went to them and said, “Listen, what to you think the revenue opportunity is here?” Bank of America had put out a report at the time, this was around November, October, that said that 1) Bitcoin futures could help dampen volatility, which kind of didn’t really happen if you think about it. But also, there was a 10% revenue something for exchanges. So I went to other folks covering the stock and they hadn’t, not only did they really not understand what Bitcoin was, but they hung up the phone on me. They said, “This is ridiculous, the exchanges aren’t going to do anything in this space. I don’t see what the opportunity is here.”
How off they were, here we are now with backed with Nasdaq potentially looking to do something with Crypto currency exchanges. Their supplying market surveillance technology too, I think at this point five Crypto currency firms. It really is a horse of a different color. To really bring the point home of how much it’s changed since I first started covering it. I remember asking a year ago, a very high-up executive at one of the exchanges, how big of an opportunity is this? Basically, he echoed the same thing that Jamie Dimon said, “It’s a fad, it’s dangerous.” Here we are now, here we know that-
Pomp: They’re all in.
Frank: They’re all in. Yeah.
Pomp: Okay, so let’s talk about the state of the media in Crypto, right. So I kinda of bucketed in couple of different categories. So you’ve got kind of legacy media which is CNBC, Bloomberg, mainstream media, etc. Then you’ve got what I would consider Crypto specific media, which is the CoinDesks, the CCNs, Cointelegraph etc. Then you have this citizen journal, journalist, right. Which are like all the people on Twitter, Reddit, Medium, etc., that are basically reporting the ground truth. How do you see those three interacting and what is the state of each one of them?
Frank: Well, I think it’s interesting because as far as legacy media is concerned, I think there are so many topics that journalists have to cover that it really just does become about the price and how traditional institutions are viewing this space, right. It’s all sort of in that lens, which under serves a lot of the folks who have been in it for a really long time, since 2008, since the beginning or maybe since 2012. That in it of itself, up until I’d say a year ago, or you have some really fine journalists at places like Bloomberg and Business Insider and the New York Times. Up until a year ago, most of the stories either had to do with price or the culture of these cyberpunks etc.
That’s changed, and I think we’ve seen a lot of legacy media really dive into this and pick apart issues ranging from technology trading and others. But that gap from the beginning where a lot of this was sort of viewed as a fly-by-night sort of thing, allowed for a lot of these medium type folks to come up. A lot of bloggers, a lot of podcasters, a lot of writers who are also trading this stuff and investing in these stuff, to fill a gap and really get granular on the technology side.
I think now you have all, those types of folks along with traditional media. But at the same time and this is a recent phenomenon too, a Cambrian explosion if you will of Crypto media publications.
Frank: That, to be honest, and to be frank, no pun intended, the pun was very much intended … there are a lot of these Crypto publications that don’t know how journalism works. They don’t know how sourcing works. There’s a lot that I think I’m very skeptical of who these Crypto first publications-
Frank: Outside of CoinDesk, I mean they have great folks working on great stories but outside of that, I’m very skeptical of where they’re getting their information of, from and the due diligence they’re doing to really make sure the information they have is precise and well sourced.
Pomp: So let’s talk about this theory, right. A bunch of us on Twitter have lovingly started calling you Frankie Scooped, right.
Pomp: Because you continued to publish scoop after scoop after scoop.
Frank: As my ego grows and grows and grows.
Pomp: But let’s walk through the anatomy of a scoop, right. How do you-
Frank: Shall we go through one that you helped me with? That’s probably not the best.
Pomp: So let’s talk through-
Pomp: How you find sources, right, how do you actually develop that source, learn to trust them, get information from them and eventually publish something?
Frank: Well that was the best thing right, about the intersection that I was at. No one in, well I don’t want to say no one ’cause that’s a blanket statement. But very few journalists, I think, were actually looking at, well let’s talk to the market structure Crypto expert at this Wall Street firm. As opposed to the Crypto first firms like Blockchain, or a Circle or a Coinbase. I thought, let me go to the Chicago base market making firms, New York Stock Exchange. Let me find their Bitcoin guys, their Crypto guys because no ones probably really talking to them because the attention is all on the Crypto side, the Crypto first side of things.
Pomp: And so that’s really your approach was let me go to the established legacy players, the Wall Street type institutions and if I start there it’s kind of a trickle down from the well established well known players all the way down to the individuals start-ups.
Frank: And that’s exactly what happened, so I started with like let’s say the head of digital assets at X Wall Street firm and they were able to connect me and grow my base with actually the Crypto first guys. So I started at Wall Street and then exactly as you sort of described, branched my way, branched myself out to those other folks.
Pomp: Got it.
Frank: It’s all about, I mean the question is how do you build trust, how do you make sure folks know that you’re not gonna burn them and that you’re not going to, I mean it’s very easy, right, to talk to a journalist in one sense. But it’s a scary thing, you don’t wanna lose your job and you just need to make sure that, I need to make sure that the person I’m talking to knows that they can trust me and-
Frank: That I’m not gonna 1) tell them, tell people things that they tell me off the record, or on deep background, I’m not gonna associate it with them. And it’s about relationships and friendships and getting to know them on a personal level, going out for a cup of coffee or a drink of some sort and really forming a relationship of shared information. I know things about the industry, I have some insights.
Frank: Some might call them insights, that can help them at their job.
Pomp: So is this like let’s say you call up head of digital at a bank or wherever, first call you’re asking questions that you want answers to that you can then use as information for a story or is it more of, “Hey call them up, I wanna get to know you, I think that we can build this long lasting relationship?”
Frank: Yeah, you don’t want to just call them and be like, “Hey listen I know you’re building this thing, you gotta tell me everything you know about it.” That’s gonna scare ’em right?
Frank: You kind of want to grease the wheels, the old foot in the door phenomenon. How are the wife and kids? I mean I’m being tongue-in-cheek but it’s serious, that’s part of the process. A lot of the time, I hear something from someone like Anthony Pompliano, might tell me that such and such is building, is being built at X Company and I think, that’s interesting. I can’t just go write the story, right. ’Cause Anthony might not know what the hell he’s talking about.
Pomp: You’re gonna make me lose all of my friends over at Fake News right now.
Frank: Yeah, right. You see this is fake news, Anthony’s not that helpful, don’t worry. But-
Pomp: Hold on so when you call these people though, ’cause this is the important part, right, so you call them and you get information.
Pomp: How do you know that the information is true and do you have to go get it from multiple people to confirm it, or how does that process work?
Frank: Well so the first thing I think about when I go into any call right, is why would they tell me this and how do they potentially benefit from telling me this?
Frank: So I’ll give you an example and this is, I think I can give this example. So when I broke that CBOE was really getting close to, or at least telling its marketing making clients that it was getting close to launching Ether Futures.
Frank: I mean, I knew this was something that would move the price, and so the first market maker who told me, right. I’m thinking, why they want to tell me this? Maybe they have amassed a large position in Ethereum.
Frank: And they would benefit from such a story. I think a lot of people in the Crypto world don’t think that really good journalists think about these questions, they just wanna get the story out. But this is something that’s really, really important to me. And so yes, just because such and such market maker told me that this was something that they had told him or her. I didn’t go off of just that one source. Because of those questions that you have to think about and so I went to another one, got the same exact story, all the details need to line up. Because imprecision, even if it’s a sentence, can radically change a story and radically can impact someones money.
Frank: No one gets a story right all the time. I reported, it was a really gangbuster report on Fidelity and their Crypto efforts and everyone knows that Abigail Johnson’s really big into Crypto. I have first reported they were hiring-
Frank: … into crypto. I have first reported they were hiring from internal, and this is, when folks send me stuff from inside the company, it makes the story process so easier, because it’s just, you look at the documents, you read it, and you write it up, and so-
Pomp: It’s like you have got paper evidence, right?
Frank: Yeah, paper evidence, that makes it great, because I don’t have to, I can’t point to my nameless source, I can just point to what I have in my hand, and so, the job ads basically said, “We’re hiring for crypto custody, and for projects related to digital asset exchange.” I followed up that report, because obviously people, when you put something out like that, they wanna talk to you, or they wanna give you more information to the story, and so, I found out basically that they had a VC fund under a British subsidiary from which a number of folks, or that was created by a number of folks at the firm who had left, and I’m sure a lot of your listeners know who these folks are?
Frank: Castle Island Ventures, and so, basically, from, I think I talked to at least five, or six people for this story. I mean, I really wanted to make sure I was getting it right, because this isn’t something that Fidelity wants to talk about, and companies typically don’t wanna talk about things, and companies typically only wanna tell you what they wanna talk about, which is the hardest part of the job, and so, the mistake I made, right? Was that I had reported that the fund had shut, which was the language that was used by all my sources.
Frank: Now, Fidelity calls me the next day, and basically says the fund is inactive. Now, it kind of sounds like the same thing, right? But, it’s that sort of precision that as a journalist, [crosstlak 00:17:44] you don’t always get it, but you wanna get it every single time.
Pomp: Because, the difference there is shut means is inactive in perpetuity, right?
Pomp: It’s over.
Frank: Sure, it’s over.
Pomp: And, inactive could mean we have money still sitting here, we’re not currently deploying it, but we may restart at some point if it’s-
Frank: Exactly, which is an important distinction, and you know as a journalist you’re not always going to get it 100% right, but those are the questions, and those are the details, very specific details that you always wanna go after, and so, a long way of answering your question, but tying back to crypto first media, a lot of the coin desk wannabes of the world are not, I think, precisely tackling stories in that way where they’re thinking about how they may be approaching it in a way that doesn’t get at those tiny details that at the end of the day seem super tiny, but make a huge difference on the impact.
Pomp: Let me ask this question. Has anyone ever lied to you? Like-
Frank: Oh, totally.
Pomp: Tell me like the horror story, right? Of, you’ve got a source, you’ve built some trust with them, they say, “Hey frank, I’ve got this awesome piece of information.” And, they lie.
Frank: Honestly, that typically doesn’t happen, so it’s not the folks that I’ve had established really great relationships with who will lie to me. Maybe they’re just confused, maybe typically, and that’s why you go to other people. It’s something like, they heard something from a company, but it’s … they heard it a little bit off. Most of the time, it’s the companies themselves that will literally lie to my face, or try to spin me in one direction, or the other, and so, one time I was reporting, Mike Dudas-
Pomp: I want a good story.
Frank: Yeah, this is a good story, so, well, he calls me, so Mike calls me the LinkedIn assassin, because I’m always reporting on folks in the crypto world, going to Wall Street, or rather the other way around people from Wall Street going to crypto. I think I reported on five, at least from New York stock exchange going to Coinbase, right? Which the assault just continues. There was one hire firm, a traditional Wall Street firm, a really senior guy was going to a really well known crypto currency company, and so I heard, recruiters are the best sources by the way, because they know where people are going, and they know for a fact that these things are happening.
Frank: And so, a really well known … Excuse me, so a recruiter told me about a very well known guy making this move, and so I knew without a doubt, but went to the company, and basically they said, “ This isn’t true.” Which puts me in a tough position, because I have to think, “All right, I only have this one guy who without a doubt knows, but they’re basically telling me this hasn’t happened.” And, on this one I didn’t go with my gut. I wrote the story, but just set it aside, and said I’ll wait, and a couple, I think it was four or five weeks later-
Pomp: So you, wait, so you wrote the story, but didn’t publish it, and you like put it in the drawer for later?
Frank: Yeah, because I was only like 95% certain, and if there was that 5% uncertainty that’s sitting like in my gut, right? And so, basically, I went to the company, I said, “This guy’s coming on as exposition, is what my source tells me.” And, they said, “Well, I mean, we’ve talked to him, we’ve talked to a lot of people.” You know the classic stunt?
Pomp: Of course.
Frank: “Yeah, but he’s not hired right now.” So, I was like, “Are you gonna hire him?” “Well, no, we may not. We talk to a lot of people.” And so, that level of sort of doubt was enough to make me hold off for a little bit, so they ended up, someone at the company ended up calling me four, or five weeks later saying, “Frank that thing you were looking into four weeks ago it was happening.” And so, I mean, that’s what confused me with when we put out that that story on Goldman’s ambitions, and everyone on crypto on Twitter saw her coming after me, and saying, “Oh well, the CFO said, Frank was-”
Pomp: Okay, hold on, we got to back up, and [crosstalk 00:22:00]
Pomp: So, you wrote a story that said Goldman is, I believe your story said Goldman is going to shut down, or is not going to launch the crypto trading desk that they had previously said they were gonna do?
Frank: That was what a lot of folks-
Pomp: Is that the takeaway people had?
Frank: That’s the takeaway people had, but the story itself was a little more detailed, and it was that custody has moved up the line, and the trading of-
Pomp: As a priority inside the bank?
Frank: As a priority inside of the bank, and the trading of physical bitcoin has sort of moved down the list, but they’re trading obviously a ton of different derivatives tied to crypto, and they’re trading futures obviously, and so I think a lot of people interpreted the story as them completely scrapping all traded … All trading of all types of crypto related assets, which obviously we did not report, because that’s not true, but I think a lot of people interpreted that as being the case. And so, the CFO basically of Goldman said that our report, or he alluded to the report, actually he didn’t really, he basically said that this sentiment is fake news, and a lot of people took that as meaning that my report, or Business Insider’s report was fake news.
Pomp: So, you wrote this report, everyone goes wild on Twitter, mainstream media, people start trying to correlate the story-
Frank: With the price.
Pomp: With the price movement etc.
Frank: Which is ridiculous, and so, CNBC for instance, they reported that bitcoin tanks $500 a coin after Business Insider report about Goldman’s crypto strategy, when bitcoin tanked an hour and a half before any of … before our report went out, and so, this just speaks to the degree of misinformation, and I think when Mike was on, he spoke to a lot of these issues, and that’s part of the reason why I’m joining the block is to create, and help create a center, a hub for people to go to where they can get out of this like ridiculous misinformation chaos.
Frank: To actually find some sound, reasoned, news and information.
Pomp: But, what is it like when you write a story, and somehow it gets convoluted into this thing, and then the CFO of Goldman has to respond, and he says it’s fake news. Like, what do you do? Do people start calling you saying like, “Congratulations.” “Hey you screwed up.” Like, what is that response from people, and what do you do?
Frank: Yeah, I mean, what did I do? I mean, I Tweeted about it, and I said, “Well, this is exactly …” I was disappointed in the response, because he obviously didn’t read the original story, or he didn’t frame his comments in a way that said, “Hey, it’s not just this one report, it’s the sentiment out of it.” So, he wasn’t necessarily precise, but I made the case clear, “Listen, this is what our report said.” And, actually Marty said after the fake news comment, he said, “Oh, you know, maybe trading of actual digital assets has moved down the list, and custody has become more important. Our strategy might have changed.” Which is exactly what the story said.
Pomp: Got it.
Frank: And so, everything in this world, as you know, emotions fly high, and they come down in like, a week, not even a week, a couple of days.
Pomp: Crypto is the greatest human psychological experiment that people, that we’ll probably see in our lifetime, because not only is it all happening in relatively real time, there’s prices attached to it, and it’s very, very well documented in terms of everything that’s being created online.
Frank: And, that’s what makes it so fun to cover, and part of the reason why I love writing about the space, originally what really attracted me to it wasn’t necessarily this any sort of political underpinning. You know, there’s a lot of libertarians in this space, wasn’t the technology underpinning, there’s a lot of really smart computer scientists in this space who love the idea of putting a monetary system in place that’s coded, impenetrable, etc. I mean, it’s insanely groundbreaking computer science. That didn’t attract me either. It was really the passion, and energy, and liveliness, and getting to tell stories for those types of people that are unbridledly insane.
Pomp: It’s epic, right.
Frank: Yeah, truly it is, yeah.
Pomp: All right, so let’s go back to, somebody tells you some sort of information for a story, right? They’re a source, and they provide you this information, and it ends up being wrong. Whether it was malicious, or not, what do you do after that story is either published, or you get kind of confirmation that it was incorrect? Do you go back, and say to them, “Hey, you told me something that was wrong.” Do you just drop it, do you burn them? Like, what is the response to that?
Frank: I don’t know if I’ve ever have written a story that’s been dramatically incorrect to the point of having to go back to someone, and take them down-
Pomp: Like, what’s going on?
Frank: Yeah. I know, it’s typically before the story will go live where someone might tell me something that’s inaccurate, but again, I’ve never had a source really tell me something that was inaccurate, people sort of dance around the truth, but that’s just part of the job. That’s part of the excitement, and it makes my job fun.
Frank: It starts with someone telling me something, and having to find, connect the different dots together, and it’s typically in that process of connecting the dots that you find people being inaccurate, or untruthful, and all of that typically shakes out before any stories is up.
Pomp: For sure. Let’s talk about a couple of things that are happening in crypto, because I think you have a really interesting perspective in that. You get to talk to all kinds of random people, right? Everything from traders, to people and legacy firms, to crypto natives-
Pomp: Kind of the whole gamut. Let’s talk about the ETF, right? So, EFT’s gotten a ton of attention, and it seems like price goes up, goes down based around these applications, denials, potential approvals, what’s your take on, does the ETF actually matter, and if so, what would the impact be if, and when it gets approved?
Frank: I have come to the conclusion that I think the ETF matters for the space, but it doesn’t matter for the price. I think it doesn’t matter at all for the price. I thought it did, I thought it could have a big impact, but going back a little bit to the run-up we saw in December after Future’s launch, I think a lot of that was driven by this idea that we’d have an ETF in a couple months. Literally, people thought that, “All right, we’ve been moving at a breakneck pace, and it’s going to continue unabated.”
And, here we are months and months later with no ETF in sight, probably won’t get one in 2018, maybe not even the first half of 2019. There’s a lot of work to be done in getting that off the ground which we can talk about, but it’s not gonna happen. Now, I don’t think that’s as important though, because when you look at the crypto ecosystem as a whole, and you think about how much work we have to do on the actual digital assets themselves on scaling, on getting a DAP, or a theorem, or an IOS that’s actually used by people, not just 9, 000 active users a month, which I think is the DAP usage, or maybe it’s a day on a theorem.
We need something that’s actually scalable, actually as use cases, not just for nerds like us, but for grandma, and grandpa in Iowa that they can understand. I was at Token Fest this past weekend, and there was a really cool company on one of my panels, and they were sort of trying to position themselves as a decentralized rival to Google, and it’s a bit tangential, but basically I ask them, “All right, why would my grandma care? Why would my grandma want to stop using Google to use this thing so she can get tokens?”
Like, that doesn’t make sense to normal people, and we need to, or those companies rather need to make sense of their projects to regular people, and so, that’s the impediment we need to get over. A use case for crypto that makes sense to the masses, not an ETF, and so, I think, if we got an ETF tomorrow, maybe the price would rally a bit, but I think that’s all gonna go down, because you’re gonna think, “All right, now regular investors have access to this market.” But, it’s the same thing as if you have an amusement park. This is a really stupid analogy.
People tell me I’m really bad at metaphors, but I think this is a good one. It’s like having an amusement park with some cool rides that are like different than other amusement parks, but they’re not really there yet, right? And so, you have the ticket guy, and they’re all just normal ticket booths. You have to go to the amusement park to get your ticket, and so an ETF equivalent for this amusement park is, “All right, now you can buy your tickets online.” But, if you can buy your tickets online, and there’s not that many cool rides that excite you, you’re not gonna go to the amusement park. Likewise, if you have an ETF, but there’s nothing that you think is that great about crypto, or you don’t understand it, right? If there’s still that educational barrier, you’re still not gonna invest in the ETF.
Pomp: Yeah. It’s just, it’s changing the mechanism, or pathway to owning the assets, it’s not actually changing the asset itself or making it more valuable.
Frank: Exactly, and it’s not making it more understandable to regular people. There are a lot of people out there that are making really great, that are doing a really great job laying out how bitcoin could be the digital gold, or a rival financial structure, and other cryptocurrencies, and digital assets that can also make major moves into chipping into existing business …
Make major moves into chipping into existing businesses whether it’s data storage or search. But that has yet to be sort of deployed and truly tested I think. Until we see that, I don’t think an ETF will make a difference. And it’s also ironic I think that we’re waiting so much for Wall Street to release complex derivative products and other things as opposed to waiting with baited breath for what’s going on inside Ethereum and what’s going on inside a lot of these projects. That’s where I think we should focus a lot of our attention.
Although, ironically, I love watching the developments come out of Wall Street. And this is something I’ve sort of been tackling with the past couple weeks. I think it’s less important.
Pomp: It’s important, yeah.
Frank: An ETF is important for the ecosystem but I think it’s less important.
Pomp: Okay, so let’s go from Wall Street versus crypto adoption to the regulatory environment. So there’s all these lobbying groups, working groups that are popping up, that are either led by Wall Street executives or crypto native companies, individuals that are trying to bridge the gap of understanding education for regulators and law makers.
Are these things good? Are they just doomed to fail? How do you see the working groups and the lobbying groups actually having an impact with the regulations and the regulators themselves?
Frank: So, Mike Novagratz had something really interesting to say about regulators impression of this space and I think it’s really smart and true and it’s that this market, for so long, was so retail driven up until the end of last year, and while there were folks at Wall Street firms looking at it, a lot of it wasn’t public and so there was no, back in the housing crisis, regulators could go to there guy at Morgan or Goldman and say, “What’s going on here with these mortgage back securities?” And you didn’t really have that with Crypto because it was so retail driven. So now they’re playing catch up, they’re trying to figure this space out, they’re giving it a chance though…they’re not completely sending it off to other countries as far as regulatory arbitrage is concerned.
Frank: They want to see development but there’s a lot of unanswered questions especially around the ETF. How can we make sure these markets aren’t being manipulated? And when so much of the action is in Asian countries, so much of the volume and turnover is in Asia, and you don’t have market data sharing agreements between exchanges, you don’t have an equivalent, you don’t have, you don’t have a guarantee, right? That these markets are operating along-
Pomp: Just in the standardized safe way.
Frank: Exactly. We don’t know what best execution is, we don’t have those market safe guards that we have in equites. But to be fair right, equity markets had 250 years to develop. So it is kind of like comparing apples and as Lynn Martin at ICE said to me in an interview once: Comparing apples and neon fluorescent signs. Which is true. And we’ll get them to be apples and apples, probably, one day but there’s a lot of questions that the regulators have thrown to the crypto world and they’re not being answered, so on market manipulation, if we can get the exchanges to sort of cooperate and collaborate to create an SRO which, the Winkelvoss Gemini Exchange has sort of tried to spearhead with their, their working group that they’ve created but you know you have Coinbase creating their own with Circle and Genesis.
Frank: Right? And I’m just here thinking, why are we getting them all together? It’s just too much of- from my perspective, it seems like the Winkelvoss Gemini Exchange wanted to get something that could help- ’cause the regulators wanted an SRO type thing. And so here they are, they go, “Okay, we’ll create this thing” to help get their ETF on the ground. And Coinbase probably sees it and goes, “Well, we’re not gonna follow Gemini’s lead” we’ve gotta create our own thing. And it’s just troubling to me because we should all just be working together, right? We should all be trying to get to that common goal and purpose which is, sound markets creating the standards for those sound markets. And educating, market participants and non market participants alike on why this is a valuable space that you should put one to five percent of your assets in.
Pomp: Absolutely. So, as this happens, right, we need technologists, obviously to build technology standards etc. and one thing I think you and I agree a lot on is like, there’s a full on assault by technologists on Wall Street and financial markets right. That the Wall Street legacy and institutions, for a long time have dominated that world and they do things in a very specific way. Technologists happen to think a little bit differently, build things a little differently, and kind of have a different set of ethos and perspective and we’re seeing this clash. And it’s really the technologists attacking the financial markets and the Wall Street institutions. How do you see that from your perspective? Right? As you talk to a lot of these Wall Street institutions, like what’s their take on this?
Frank: What I think is really interesting, if you want to look at something that can prove or can support a bullish thesis on crypto, right now price obviously, is out of the argument. Scaling doesn’t look as great. There’s a lot of issues. But if you want something that looks good, look at the talent assault. Look at how many folks from traditional Wall Street, I can list them off, have either dived into crypto themselves or have been taken from a Wall Street firm to the crypto work.
You have a guy like Jamie Sellway who left ITG to be head of institutional development or sales, not sure what the precise title is, to go over to [inaudible 00:38:28]. You have a person like Christine Sandler leaving New York Stock Exchange to go to Coinbase. Eric Shrow from New York Stock Exchange went to Coinbase. Hunter Murgart, went from, I think he was a sales trader at Barkley’s? He’ll probably listen to this and tell me if I’m wrong. He went to Coinbase. You had a guy like, I first reported, 25 year veteran [inaudible 00:38:49] [inaudible 00:38:49] going to Cracken for their OTC desk.
I mean, the assault is unreal and so you have to think, I mean, they’re probably making great salaries but there is this, sweep that proves I think, that there is a vision that they see, and there is efficiencies that can be driven by this technology. And potentiallY maybe even a revolution.
Pomp: Yeah. I mean look at, forget all the money for a second, I really do think a lot of these people are leaving because they are going to something more exciting, more powerful, and it’s a global phenomenon. And so the whole idea of like the virus is spreading, really has become this thing of where, the idea of what Bitcoin, digital assets, decentralized finance etc. has spread and captured the mental energy. And it’s a thing where once people get exposed to it and understand it, they can’t stop thinking about it, they can’t stop trying to figure out how to solve some of these problems do get inside of an institution that’s a legacy Wall Street place just isn’t going to cut it for a lot of them and so they’ve gotta go find somewhere else, that’s what they’re doing.
Frank: Totally but at the same time you see a company like ICE launched back and I’ll tell you, folks inside Coinbase tell me that they think across the crypto exchanges, they’re not chasing the competition in that respect but they do see a serious competitor. And that’s because the trading market structure element of this is so integral to building a sound market whether it’s crypto or otherwise and so long story short, you see tons of institutional firms looking at how they can break in, whether it’s Goldman on custody, Numera on custody, ICE obviously on custody and potentially trading and that’s the story across the street.
Pomp: Absolutely. No that makes complete sense. Alright, let’s do some rapid fire questions-
Pomp: And then I’ll ask you one non crypto question that I’ve been thinking about a lot and I’ll let you ask me one question to wrap it up. What’s the most controversial thing that you believe in crypto? So, the thing that you believe that the most amount of people, when they hear it, will disagree with you.
Frank: I guess probably the ETF thing. I don’t think we should be worrying about it as much as we do. Maybe that’s not controversial. I’m sure someone might say-
Pomp: There’s a good amount of people that disagree with you.
Frank: Everybody is like obsessed with this ETF!
Pomp: You’re not?
Frank: I’m not obsessed with it. It’ll be cool when it happens. People will probably argue -
Pomp: He’s all in on it. So, what is the most important or interesting thing in Crypto that people might not be talking about?
Frank: That people might not be talking about- I reported on a fundraise out of Chicago, a company called CCX, and this company is an institutional platform for spot and derivatives, and they have hedge funds knocking on the door. And so, what’s interesting about them, one they raised fifteen million in a bare market which speaks to a whole other conversation about how the public markets for crypto, whether it’s ICOs, or otherwise, really, really bad but companies are still raising millions of dollars.
Anyway, what’s interesting about them is the majority of the firms, or no, sorry, not the majority, but a large percentage of the firms that are knocking on their door from the institutional side, have never traded crypto before which is really insane. And so clearly they have something going on there. CFTC regulated platform that I think is really interesting. And they have a suite of heavy weight, ex Wall Streeters, a guy named Sam Tegal, who I first reportted left jump trading, he was recently brought on and they got a really cool guy running the show’s who’s like 25, super smart and so the company paid attention to him.
Pomp: Alright man. We’re gonna take your word for that one. You’ve got a magic wand and you can wave it and change one regulation. What do you change?
Frank: One regulation, that’s…i think I, we’re probably on the same boat as this, I think the whole thing around the fact that you have to have $250,000-
Pomp: Accreditation laws.
Frank: Yeah, accreditation laws, I would… I wouldn’t eliminate them I don’t think but I think especially someone who’s younger and has some extra cash, there’s no reason why a computer scientist at Harvard who may not have $250,000 net worth, shouldn’t at least take five grand and invest it in a venture capital project he think is interesting. I think that’s absurd.
Pomp: Yeah and I mean look, it’s not so much as eliminating accreditation laws, it’s just switching what the criteria is.
Frank: Yeah, exactly.
Pomp: So today we have wealth as a signal for intelligence which is a ridiculous. They’ve gone on and on about this, I don’t need to touch on it anymore but if we can go from a wealth criteria to a knowledge criteria, I actually not only think that one it is more inclusive of the general population but two, it actually probably makes it less risky in a more sound market. Because everyone is more intelligent.
Frank: There’s tons of people with 250,000 net worth who are stupid.
Frank: I can name like five.
Pomp: For sure. Alright, so this is the first time I’m asking somebody a non crypto question, but something I’ve been thinking a lot about and I just, knowing you you will have a great answer for this. So, lots and lots of people are interested around aliens, right? Let’s go ahead and just, yes there is some sort of living organisms outside of Earth. So there’s aliens somewhere. Do aliens have pets? So are their alien animals or are there just alien humans?
Frank: It reminds me of that South Park episode where Earth is like a show where they put a bunch of different species on one planet and like, we’re all going after each other, starting wars, eating each other.
Pomp: Joke’s on us.
Frank: Maybe we’re the pets.
Pomp: You think we’re the pets?
Frank: Maybe we’re the pets.
Pomp: Alright. I love that answer. The way that this came up was we were talking about aliens one day and I said you know, we always talk about aliens like human equivalents. They’re gonna show up and we can talk to them and hang out with them, they might attack us, but what about all the animals? Right? What- how does that plan go?
Frank: Do they have animals?
Pomp: I don’t know. Maybe we are the pets or the animals.
Frank: Or the show.
Pomp: Well we’re definitely a show. I don’t know who’s watching but we’re definitely the show. Alright, so I let every guest ask me one question, what question do you have for me?
Frank: That’s a great question. What question do I have?
Frank: What company- I’d like to know what company you think is the most exciting right now?
Pomp: Oo. What company do I think is the most exciting, I’m going to break from the question.
Frank: Aside from Morgan Creek.
Pomp: Yeah, take Morgan Creek out of it. I’m actually not going with a company. I’m gonna say that it is Bitcoin. And the reason being, I think people are bored by Bitcoin. I was making the argument to a friend the other day. Bitcoin as an investment opportunity. Bitcoin as an economic development, Bitcoin as a kind of, threat to sovereign backed currencies, etc. It’s too boring. It’s kind of come and gone in terms of the excitement of Bitcoin and so now we see everyone going into everything from the derivative trading, to what Wall Street wants to do, to enterprise block chains, utility tokens, there’s also other fun, sexy stuff going on.
But if you go back to Bitcoin, I still think it’s the most interesting, the most important development in space, and if it is successful, so it is a complete binary bet in the sense of a true venture capital bet. If it works, it’s going to be insanely valuable. Even from here, if it doesn’t work, it’s going to 0. Right? And so that binary aspect of it scares a lot of people, right? But if it does work, it is probably the greatest technological development of the last, I don’t know 500+ years. And the reason why I think that it’s so important is because it is so simple. There’s almost beauty in the simplicity of Bitcoin and what it is, what it is trying to accomplish. All of the intellectual Olympics that happen on Twitter and these other mediums, they kind of just skip over it. Yeah, Bitcoin’s a thing, it was one of the first applications and so let’s go talk about everything else we’re gonna try to figure out.
Well, if you go back to that and you really sit and think about out of every single thing in crypto, what has the potential highest impact in a whole different ways you cut it, Bitcoin’s still probably the most interesting, most important thing. We just don’t spend as much time thinking about it because of all the other sexy, cool things we talk about.
Frank: And that’s why were here.
Pomp: Literally why we’re here. Listen man, this was so much fun, I really appreciate you coming on.
Frank: Yeah, it was a pleasure.
You can find the recording here: Off The Chain Podcast: Anthony Pompliano and Frank Chaparro
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