Investing in digital currency and blockchain technology

In part 1 of the AMS Crypto Investing special Elizabeth Rossiello, AZA Finance Founder & CEO, Adam White, Bakkt President join Yahoo Finance’s Zack Guzman to discuss Investing in digital currency and blockchain technology.

Video transcript

ZACK GUZMAN: And I just wanted to start this one off with a look back on how far we've come since the early days of crypto, and perhaps more importantly, how much farther we have to go here, because I'm sure a lot of people watching this think that they may have missed out. We've seen Bitcoin really climb here over the last few years. And I'm not sure if that's true. So let's dig into it here.

And Adam, we can start with you, because I know Bakkt put out a recent survey that was kind of interesting to look here at US consumers. And you guys found that nearly half reported investing their money in cryptocurrency here to kick off the year, which seemed higher than maybe some of the other surveys we've seen. But what have you seen in, I guess, the demographic of who's most excited in getting involved now relative, I suppose, to years past, and really, where that excitement lies?

ADAM WHITE: Yeah, that's right. So back just to take a second to explain what we do. We allow consumers to put all their digital assets right alongside one another. So your crypto is going to sit, and does sit, right next to your airline miles, your hotel points, your gift cards. And we're adding more and more digital assets every month. What's so exciting about that is it demystifies this idea of crypto.

And what we did as part of that work is we went out and spoke to consumers, spoke to potential users. And we asked, hey, how are you thinking about crypto? How do you plan to use it? And some of the really interesting data points we found is, one, like you said, we're still early. There is still growing interest. 32% of the people that we spoke to have not purchased any crypto and plan to within the first six months of this year. That's really exciting.

We also found that almost 24% of people said that they have plans on using crypto for online digital purchases. So there's real utility behind these assets as well. But also, we found that we still need more education. 40% of people that we spoke with didn't realize they could purchase a fraction of the crypto, meaning they didn't have to buy a full Bitcoin for $43,000. So as much as we like to think, wow, crypto has come so far in the last 10 years, I still think we're very early in the process.

ZACK GUZMAN: I still hear that too, people surprised that they don't need to buy a full Bitcoin here. And it's very important to stress. And I suppose, Elizabeth, too, when we think about some of the concerns that people might have when it comes to investing in crypto, volatility also one of those things. Adam, in your guys' survey, I think it was a third of people said they didn't want to get involved because of too much volatility. But Elizabeth, you just pointed out with your focus on Africa, even currencies over there sometimes perform a bit more volatile than what we've seen in crypto. So talk to me about, maybe when we back up and look at a global stage, how important the technology is.

ELIZABETH ROSSIELLO: Well, first of all, when we're talking about AZA Finance, we're really talking about making a market in foreign exchange in all frontier markets. And when you talk about foreign exchange, you have to talk about treasury and settlement infrastructure. And going back to what Michael said from Grayscale in the segment before, we're really about building that on and off ramp between the old financial system and the future of finance.

So in our basket of over 100 currency pairs that we trade, digital currency pairs are right alongside it. And when you think about the needs of frontier markets, these are highly volatile assets. So we need to talk about risk mitigation. We need to talk about real-time settlement so that we don't have a delay in settlement adding to the volatility. And we need to be able to trade around the clock.

And so when there's a US dollar holiday, for example, in North America, we don't need trading to stop in West Africa or South Africa or trade between Africa and China. So digital currencies really provide a necessary solution not just for investing in a future asset class but also an infrastructure for settlements of foreign exchange and frontier markets and those markets that don't necessarily match completely with North American or European markets.

ZACK GUZMAN: Yeah, let's stick with that too for a second here, because we've heard a lot of maybe people here in the US who are involved in traditional financial institutions-- I know you were involved with prime brokerage before-- who have seen the inefficiencies here in the US and have jumped over to crypto just because of things being quicker to settle. But when you look at maybe things getting built out in developing economies, there in Africa particularly, I guess I'm reminded of the way that India and other developing nations jumped, even needing landlines, already getting on to cell phones. If there is a potential benefit there in being able to lay this out at the same time that old traditional systems were getting laid out as well, does that maybe give a boost not just to adoption, but I guess what the future looks like for some of those developing nations?

ELIZABETH ROSSIELLO: 100%. And when we look at an era in the post-Bretton Woods monetary policy world, we can't be talking about settling through the US dollar, which settles over SWIFT all the time. When we're trading between continents that don't involve the dollar, why should we be using dollar legacy infrastructure? And that might sound radical, but it really doesn't make a lot of sense to trade from West Africa to the US and then back to South Africa in almost a triangle.

And the World Bank was quoted as lending in rupee in India or lending in peso in South Africa, but the lending in Africa was still in the US dollar. So the monetary systems, the settlement infrastructure, the banking system across the African continent has been heavily reliant on infrastructure that just doesn't match its needs. We're talking double-digit FX margins between South Africa and Nigeria, two of the largest economies on the continent. We're talking about 7 to 10 days to settle between the francophone monetary union, which is the same currency. So we really need to think about the future of financial infrastructure. And that includes digital currencies, which can settle real time globally with counterparties interconnected in a way that the traditional infrastructure just can't and was never built for.

ZACK GUZMAN: And Adam, I mean, when we see institutions getting interested in crypto for just that-- I know that you work closely with institutions to provide custody here, and I've seen a big boost. That seems to be what has really driven some of the price appreciation we've seen this year, is institutional investors getting involved. How important is that in terms of what Bakkt is trying to build here? And what have you seen from that inflow, I suppose, in excitement this year?

ADAM WHITE: Yeah, Bakkt was actually launched a couple of years ago. And the first product we offered was regulated custody for financial institutions. And we've done that through our partnership with ICE, a Fortune 500 company that operates some of the world's largest exchanges like the New York Stock Exchange. But that regulated, trusted financial infrastructure is core to institutions moving into this asset class. Beyond that, stuff like Elizabeth was talking about with the technology as well, it's fascinating. It's incredibly opportunistic growth for the space. But right now, where we see most of that institutional interest is on having asset exposure to assets like Bitcoin. So that is the core of what Bakkt offers.

And I spoke a little bit about the consumer product we have, but Bakkt also offers that regulated custody in those futures contracts which allow institutions to move into this asset class in a way that feels familiar and is fully regulated by regulators here in the US.

ZACK GUZMAN: Yeah, and when it comes to that too, I mean, I guess there are questions about safety. Well, we're going to take a quick break here, but I want to get one more in with you, Adam, when it comes to safety on that front, because that too, I suppose, would be one of the issues maybe preventing some people from coming in here. But how important have improvements been made there to really ensure custody here relative to some of those early days? I know people look back at some exchange hacks before, how far we've come from there.

ADAM WHITE: Yeah, we've come a long ways. The reputational debt of crypto still has a lot of people. The first question they ask is, how are you protecting my crypto assets? And that's the right question. But now we see incredibly sophisticated financial institutions in this space. We see startups that have come a long way and have some great technology themselves. So I think of anyone operating in the space right now, I think security and compliance are two things at the forefront, and certainly what we take most seriously here at Bakkt too.