The concept of getting more people to invest in and use cryptocurrencies has been a major topic in the space since cryptocurrency began: how do you get people to trust their finances into a system that is so radically different from the traditional financial world in so many ways?
This question has been tackled from a wide variety of angles: there has been quite a bit of conversation around regulation and compliance; some have argued that it comes down to user experience, while others have claimed that it’s going to take a real financial crisis for people to begin taking digital assets seriously.
Last month, however, cryptocurrency merchant bank Galaxy Digital and alternative investments platform CAIS formed a partnership that focuses heavily on another aspect of the expansion of the crypto space: education.
The partnership is slated provide financial advisors with educational resources spanning blockchain and digital assets, aims to awareness and knowledge of blockchain and digital assets at a critical time for financial advisors–who, according to Galaxy and CAIS, are experiencing increased client demand for crypto-related products. The partnership will also prvoide streamlined access to Galaxy Digital Asset Management’s investment products.
Recently, Finance Magnates spoke with Matt Brown, founder and CEO of CAIS, and Steve Kurz, partner and head of asset management at Galaxy Digital, about the partnership between their two companies, and about the ways that the cryptocurrency world is developing more generally.
Providing on-ramps to crypto for financial advisors
Matt Brown told Finance Magnates that the partnership between Galaxy and CAIS originated in part because of a growing desire among financial advisors to learn about and have access to digital assets.
Matt said that over the last three to four years, “many financial advisors” have been asking if CAIS is considering developing or offering any resources on the digital currency space. However, quite a bit of time passed before CAIS found a platform that it found to be sufficiently institutional in its approach.
All the while, “the drumbeat of Bitcoin continued to get louder,” Matt said. “The demand for more information and access to products was there, but this gap existed: who is going to be the firm to step up with the right solution that has an institutional approach for the institutional wealth space–not the B2B (business to business) space, but the wealth advisor community?”
This is how the partnership between CAIS and Galaxy was born: “it was a natural fit,” Matt said.
“When I think about what success could look like in the short-run (the next 6 to 12 months), more financial advisors are learning more about this space in an easy fashion; [they’re] having better conversations with their clients about it, armed with real information.”
In the longer term, Matt sees the possibility of these investors “approaching investing in Bitcoin [and crypto] as an asset class–as a portfolio allocation–rather than a more B2C (business to customer) play where you’re just kind of dabbling; a really thoughtful approach on where Bitcoin fits in a portfolio.”
“If you look back on 2020 ten years from now,” the digitization of value will be “the story of the decade”
Steve Kurz added that when Galaxy launched two Bitcoin funds directed at the “wealth of America”, the merchant bank had “a full forward plan in terms of content”, which includes a co-branded partnership with the Financial Times.
However, Galaxy was particularly drawn to the educational capabilities that CAIS has developed: “taking what was more marketing content at a top of the funnel, higher-level basis, and then really helping it go deeper so that some of the concepts of this new technology could actually sink in, and there could actually be learning that happens.”
“Given our view of how foundational this technology is, that’s a great plugin to what we were already doing,” he continued. “We think [it] provides a real base on which to move forward with financial advisors and their underlying clients, not over one year but over five or ten years.”
“Our core view is that if you look back on 2020 ten years from now, you’re going to say that the digitization of finance and value–this is going to be the story of the decade, and you do need a foundation–not just a marketing campaign.”
Education and accessibility is the next logical step in the development of the “architecture” of digital assets: Steve Kurz
After all, “[…] you have a lot of new technology that has a lot of different nuances to it, and people don’t really know what it is, why it matters, or how it fits into their existing investing,” he continued.
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Therefore, Steve said that Galaxy’s approach to the cryptocurrency space has always been geared toward building infrastructure for the space: for example, “two years ago, we built an index called the Bloomberg-Galaxy Crypto Index, which was supposed to bring data standardization to a new space, institutional credibility, and really define the taxonomy of the asset class.”
Steve explained that indeed, the “architecture of this new asset class” is still in its development phase: for example, “what constitutes Blue-Chip for Digital Assets?”, and more broadly, “[…] how do you use traditional terms and concepts to get people to understand crypto and blockchain in that vein?”
In other words, there’s a lot to cover.
Just as CAIS was attracted to the institutional infrastructure that Galaxy was working to develop, Galaxy was attracted to the educational infrastructure that CAIS had developed for its clientele: specifically, CAIS IQ, an AI-based learning platform that is designed to create modular educational courses for financial advisors.
“[…] The modularization of learning is particularly appropriate for digital assets and blockchain–which are related, but they’re different things,” Steve said. “And so, when you ask the question, ‘what is it actually going to look like?’, our starting point is the fundamentals of digital assets: what are those subcategories, and how do you think about the different pieces of the overall new and growing asset class?”
Steve said that he believes that for all of these questions, “if you just went and googled them, you’d go down a million rabbit holes; you’d see deep technology writing that is bottom-up oriented, and your eyes start to glaze over.”
Timing: the launch of the partnership coincides with a number of significant global events–is this intentional?
Why did Galaxy and CAIS choose to announce their partnership now, given the context of everything that’s been happening in 2020?
Matt Brown explained that part of the reason behind the timing of the launch is simply coincidence: “we didn’t start by trying to ‘time the market’”, he said. “This is obviously a very long-term opportunity, and a lot of thought going into it.
In other words, “partnerships like this don’t happen overnight,” and that “with or without the current situation we’re in, we were steaming ahead starting last year with the partnership with Galaxy.”
Steve Kurz added that “from the perspective of the growth of this asset class” as Galaxy has navigated through it, “in 2017, you had the retail-driven frenzy of crypto; in 2018, we launched the Bloomberg Index; 2019 was all about bringing great service providers and launching funds.”
“[…] As your turn the page to 2020–irrespective of what’s happening in the macro picture–the next step is education and access.”
Do people need “new tools in the toolkit?”
However, taking a look at the macro picture and the economic changes that have taken place as a result of COVID-19, Steve Kurz cited Paul Tudor-Jones’ May 2020 letter, which focused around the “great monetary inflation” that has resulted from global governments’ efforts toward economic stimulus.
“From a macro perspective, there’s a real question for portfolios, and I think this technology fits well into that context,” Steve said.
“When you have over 20 percent budget deficits, you have more than $4 trillion in QE just in the US since February; people are looking at their portfolios and saying, ‘there’s uncertainty: we need new tools in the toolkit–and oh, by the way, the world is changing pretty dramatically.’”
Steve explained that therefore, this need for “new tools in the toolkit” is more pressing than ever: “for something like Bitcoin, there’s two legs of that,” he said.
”The internet and gold had a baby, and the baby is called ‘Bitcoin.’”
“On the one hand, Bitcoin is a verifiably scarce asset: there are only 21 million Bitcoins, and there will only ever be 21 million Bitcoins,” he continued. “It’s just like gold, in that sense–it’s potentially a hedge when you think about the profligacy on the fiscal side, and what that could do for your portfolio: that’s the ‘defense.’”
“The ‘offense’ for Bitcoin is that it’s part of that big digitization trend: it’s part of that ‘digital money’ trend, which is global and generational: one in five millennials own Bitcoin.”
“And so, there’s this really interesting dichotomy of Bitcoin: you have the ‘offense’ (which is a growth asset component) and you have the ‘defense’ (which is this ‘macro hedge’) sort of smashed together,” Steve continued.
“It’s hard to wrap your head around it, but it’s sort of like the internet and gold had a baby, and the baby is called ‘Bitcoin.’”