Topics: Portfolio diversification, AI investing, investment predictions, tax loss harvesting, create and managing your own portfolio, Global Predictions

Anthony Noto , Benzinga Editor

Featured Guest:

Alexander Harmsen CEO, and Co-founder of Global Predictions

Prepare your portfolio for today's economy

With Global Predictions Import your 401k, crypto, real estate, and investment accounts and get automated recommendations from an expert system.

BZ: Hello, Alexander Harmsen. Welcome to Benzinga Interviews. How are you today? 

Alex Harmsen: Great to be here. It's going really well for those listening wherever they upload their podcasts or watch their internet videos.

BZ: Alexander is an experienced . Tech entrepreneur. He's a CEO and board member and advisor having founded multiple successful companies and organizations. So he is a good get for us here at Benzinga. And I'm happy that you're joining us today. We have a lot to talk about. But first and foremost how are you doing?

How has, how have you fare during this turbulent time in the economy? Inflation is an all, is that an all time? 40 year high. I believe that's the number that they're telling me what's your take of everything? 

Alex Harmsen: It's definitely a time when macro plays a more important role than, almost anything else.

Where one of the things, one of the trends that we've seen, happen. A huge change over the last 13, 14 months is, we've seen a lot of people go from focusing on individual stock picking everyone feeling like they're a winner. They're really good at this game to, people focusing on travel, shutdowns, inflation, thinking about geopolitical events, thinking about how, supply and demand is changing.

Thinking about transportation network. Thinking about, commodities, oil, all these macro pieces, which for a long time I think was for us, the major focus. We've always thought that portfolios as a whole rise or fall based on these macro trends and that, putting that into the spotlight has just aligned a lot with, what we focused on at Global Predictions.

Personally I've never really spent much time doing the stock picking. It's always been thinking about the portfolio and diversification. And downside protection and how all these different pieces fit together as a puzzle in my own portfolio. And I'm actually very excited to have just, bought a, bought my first house.

Even though mortgage rates are crazy high, we got the house at something like a 40% discount compared to what it was going at, six month ago. 

BZ: So how did you find this deal? 

Alex Harmsen: Tons of opportunities, honestly. We didn't have to hunt that long. I think just based on all these macro conditions and the interest rates rising, it was it just put a lot of downward pressure on the housing market and we're seeing that not just in the Bay Area where I live, across the country.

3:05 BZ: So you're, I take it you're very savvy for you to find this great house deal. And that had to have, Inspired you to start Global Predictions because the thesis is to make people smarter investors or to help people become smarter investors. 

Alex Harmsen: Definitely we want to help people become more confident in investing.

I think, it started for me and my co-founder I like to think of this as the classic, Wall Street, meet Silicon Valley. My co-founder worked at Bridgewater for more than half a decade. 

And my background, I've ran a, like you mentioned before, at the top of the podcast a number of different successful startups. Fundraised, tens of millions of dollars ran teams of 50 or 60 people. And my background has always been focused. Physics and modeling and simulation and AI and trying to apply that to economics and then integrating that with the investing I think provided a, just a crazy unique opportunity for us to democratize a lot of the tools that you might see in professional portfolio management.

Hedge funds, family offices, pension funds, trying to bring those kinds of tools down to the masses, to make it easy enough for me to use, my own life. And even this real estate decision, partly came about because, there was a very clear hole in exposures and diversification.

When it comes to real estate, especially when mixed. The tech exposure and the startups and, the, the other assets that I have personally in my life. It felt like over the last 10 years, there's been a significant amount of. Tools and platforms available to help people with trading and accessing stock markets.

Lots of news, lots of what feels like noise. I think to most people, if you're not doing this full time, if you're a software engineer or marketer or a dentist or a doctor, then you know you have your life to live. You're, a professional in some sense. And so we wanted to help people, give them the right sort of platform to be able to think.

How am I doing overall across all of my different assets, in one place?

 BZ: Let's pretend I'm a potential Global Predictions user. Haven't heard of it until today. What can it do for me? What's your pitch? 

Alex Harmsen: I like to think about Global Predictions is the intelligence engine.

We've built a recommendation platform. We've built a macro insight system. That is looking at hundreds of thousands of different trends across the world. And then we have a tool that you can sign up for free called Portfolio Pilots. And Portfolio Pilot basically lets you import your retirement accounts, crypto cash real estate investment accounts, aggregate them all into one place, and then it connects that to the Global Predictions recommendation engine to provide you analytics, recommendations, advice on what to do.

And then at the end of the day, you are in control of the, that decision. So we vary specifically, in the sign up flow. Remind people, we can't make trades for you. You have to hit the big red button. because it really feels like for a lot of people, a lot of our users, they want to feel more confident, they want to understand what's going on and then at the end of the day, make the trade the to really own that those decisions 

BZ: portfolio pilot came out just this month. 

Alex Harmsen: Correct. We've been at beta for like almost more than a year. We have close to a billion dollars of assets on the platform, but then like truly opened it up. Just last week, six days ago. 

It's been a crazy week for us. Absolutely.  

BZ: You have a new product coming out. a new feature, I should say

Alex Harmsen: As part of the sort of multi-week, launch strategy for us. We had thousands of users sign up just in over the last couple days. And then teasing a tax loss harvesting tool that we're about to launch in December 1st. And so one of the most requested things that we've received from, the people that are already using the system is being able to do something like tax loss harvesting the.

It really feels like tax loss harvesting is something very simple that can save almost everybody thousands of dollars in 2022, especially because, probably there's a few items in your portfolio that have lost money this year. Probably a few. And it really feels like only robo advisors are able to do that.

But you don't have control of that process. Basically you have to give your. Or you have to work with a wealth manager or family office. And so for the vast majority of people, I think most have heard about it, but don't really have the tools to be able to do it properly.

So we're basically launching December 1st, a do it yourself tax loss harvesting feature that we think can save you a couple thousand dollars with maybe 15, 20 minutes of time. As long as you do it before December 30. Okay. So there's a little bit of a time crunch there and, but it's not a robo advisor.

It's not a robo advisor. Okay. Like I mentioned, it's really, it's, we're trying to give you the tools, recommendations, advice, guidance to get to the finish line, to get to the point where you need to go and execute the traits yourself very intentionally, and you may think, that's a, an issue with the platform, but we found that gives people the confidence to experiment

And really understand what they're doing and then, actually pulling the trigger itself. , makes it very clear what you are and what you are not doing. Shows the transaction cost. Shows all the inputs that go into that. 

9:30 BZ: Just real quick, walk us through how that could potentially reduce our tax bill come next year.because I give my paperwork to my accountant. She's great. She handles everything and I don't worry about it. I give her receipts. I give her my spending. 

What is this product and how could, or this feature and how could it potentially save someone like me a little bit? 

Alex Harmsen:  absolutely. Even myself, I work with an accountant, come February, March, I download everything from all these different platforms, send it off in one big package, and then they try to, minimize the tax bill and take advantage of whatever it is that the house, the mortgage, the kids, whatever it is.

And the important thing I think to realize though, is that, as part of that package that I send, I am downloading from my Interactive Brokers account, a statement of everything that I sold over the last year. And, there's some sort of realized gains from my investment portfolio and the realized gains basically get added to my income tax and, get included as part of my the attacks that I'm paying at the end of.

And so one of the things that you can do if you take this step, before December 31st, before the end of the year, is sell any losses and basically cut down the amount of realized gains. So maybe I've sold, $20,000 worth of stock and, realized $6,000 worth of gains this year.

 If I have $6,000 worth of losses, I could offset that. and basically pay $0 in additional income tax from the investments. Of course. Maybe I don't wanna sell those losses, because I like having the exposure. Maybe there's a bunch of tech stocks or crypto, that's down right now and I'm intentionally holding onto those because, I think the markets are gonna recover at some point in the next couple years.

So the second half of the tax sauce harvesting is basically buying very similar. to the ones that you're selling so that you can count the losses and still have the same kind of exposure that will rebound over the next couple years as the markets recover. And so it's basically selling the losses to match and bring your gains down to, as close to zero as possible, and then finding the equivalent ETF or the equivalent stock to keep the same kinds of exposure in your portfolio so that, as a portfolio, nothing really changes.

You have the same expected returns, you have the same downside protection, you have the same risk in your portfolio, but you're able to minimize your tax burden. Interesting. Okay. So how did you get Global Predictions up on its feet? It's a relatively young company, correct? We're a couple years old at this point.

Global Predictions itself. We wanted to validate that we could build some core engine that is monitoring data that's taking in hundreds of thousands of different securities, macro trends, different types of data about, what's happening in the world. We built a world monitoring service on top of.

To understand, what's happening and where is it deviating from historical trends. There's an anomaly detector that's built into that. And then we basically have a forecasting engine there that uses a couple different models. And then you have something like a portfolio management system on top of that with tools like recommendations that, plug into portfolio pilot, the consumer tool that we.

And as you can imagine, that's taken a couple years just to stand up all that infrastructure. But in many ways, this is similar to what you might find, behind the scenes at some of these systematic macro hedge funds. Something similar to what you might see at, hedge funds like Bridgewater.

And partly you need the scale, right? You need all this data. You need to look at all these things at the same. Partly because everything is interconnected. One thing in the economy affects something else. If you are just looking at real estate in New York, potentially you missed the fact that covid or inflation or interest rates or liquidity conditions, have an impact on that market.

And we spent a lot of time validating that. And our core thesis, for Global Predictions was, can we take these hedge fund level models, tools, infrastructure. And basically turn that into something that we can then build a commercial business on top of. And portfolio pilot is really the first, tool that we build on top of this core infrastructure.

because, we thought what better mission is there than democratizing access to these kinds of models? And there's, hundreds of thousands of users that are looking for these kinds of tools to, optimize to get a little bit more out of their portfolio. And have some sort of security, build some sort of confidence, especially in the downturn like we are today.

BZ: So you built pretty much built this thing, I imagine with a small team during Covid, like during 2020 when everybody was trapped in the house, like when, give me, walk me through the timeline. 

Alex Harmsen: Absolutely. Like I said, it was the modeling a simulation background.

I've been doing this, for the last 15 years or so, and we've built the same kinds of hybrid AI models, tremendous amounts of data in the autonomous vehicle space, in life sciences, in pharma and then, bringing that into the sort of economics and the investment. In many ways felt like a natural extension of that.

And meeting my co-founder Reid we hired a, we raised a couple million dollars from venture capital and especially during covid when early days was sort of March, April, may of course when it felt like the world was being turned upside down. There was a whole new economic paradigm.

Everyone was looking at different kinds of relationships, felt very fitting at the time. And you can imagine. 10, extremely smart, very diverse team over the last couple years basically working on these models, bringing this data together to be able to deliver.

What we think is a relatively simple tool now to, to consumers. Where are the, I like to think that there's tons of potential now that we have this core model and that's been stress tested and works for, tons of other applications down the road. So all through Zoom calls, crunching all this data, it's a completely distributed team.

 We have 10 people on the team and I've met four of them in person. Wow. And working together for years. It's distributed all over the world. People in Europe, India, Canada, the us you get one of the great things actually, I think about Global Predictions is that it's, truly global.

 And because of the time zones, there's someone working on it all, around the clock. 

17:20 BZ: You're a Y Combinator person, right? You're a vet from Y Combinator 

 Alex Harmsen:  exactly. Were you able to pull connections from there too, to get this up on it feet? because I imagine other startups got the, the metaphorical door slammed in their face if they ever tried to pitch something during 2020 when everybody was remote and oh gosh, oh, you and everybody else got a startup idea.

BZ: But what was some of the past connections you have as this veteran entrepreneur that helped in this getting Global Predictions? 

 Alex Harmsen:  I will say that I'm quite fortunate in having, existing network of investors to pull on existing network of engineers and, this community partly through Y Combinator, that's been tremendously useful, partly through On Deck as well.

Also a great community of co-founders and company builders and investors. There's, a couple different scholarship networks I'm a part of, partly the alumni network. I honestly think that there's this saying that, some of the biggest companies in the world have been built, during recessions.

 And I think part of it is because you need a certain amount of, fiscal responsibility. Partly because the money isn't available, you have to innovate. You have to, be very lean about how you build a team. And so I think we've stretched the money that we have, quite far.

But I also think that, especially in 2020, the early days of the pandemic there was just so much uncertainty in the investment community that, a lot of investors did go back to. Successful entrepreneurs, people who have done it before which I do think gave me a little bit of an unfair advantage.

 Especially because the thing that we're pitching is, a little bit insane. It's definitely a very big vision and I really don't think we're gonna be able to realize the true potential of Global Predictions, for another 10.years . Okay. So literally it's right on the brink of really pulling together all this, all the trends.

because if you start during Covid trends were, who knew what was gonna happen. Exactly.

19:30 BZ: So it's, so how do you test that? How do you get it started? If things are so uncertain, even now things are uncertain, heading into 2023. How do you convince a potential customer we are the platform for you?

 Alex Harmsen: I think this is a great question. I honestly, I think there's, maybe there's two parts of this question or two parts of the answer. One part of it is that I think it looks uncertain if you look, with a microscope , if you look one day at a time or if you only look at, one or two relationships and I think we get caught in this a lot because it's very easy to tell a narrative and say Apple is going through this crisis because of, X liquidity conditions, but in reality it's a much bigger picture.

And so if you're able to zoom out and actually look at the macro picture, if you're able to look at all these different trends, then you know, I think you start to see a machine that actually functions fairly rationally. It's not really a surprise that over the last year, to control inflation, the Fed is at the right interest rates.

It'll. Unemployment, it's gonna because layoffs. It's gonna because these companies revenues to fall. It'll because these impacts on the stock market. Liquidity people end up delivering, right? There's a chain of events that's fairly predictable that happens every single time there was a recession, or every single time we enter into a high inflationary period.

And so I think if you zoom back far enough, history repeats itself. But it never repeats itself exactly in the. I think the underlying factors end up repeating themselves and if you can capture those underlying factors and then, so I think that's part one. Okay. And, we will never be a hundred percent perfect.

And so part two is, acknowledging that, we make certain forecasts, we understand these different relationships, but every single weight in our knowledge graph, every single forecast we make, every single recommendation, comes with a degree of. And so we like to think that we have very high accuracy within our models, but relatively low precision.

Okay. And we're right almost all the time, but in many of our forecasts there's big error bars. And that allows us to be right, within this, margin of error. There is the chance of being correct is pretty. And if you use those kinds of models, with the error bars and the uncertainty together with a good portfolio management approach, then you can actually capture the right sort of risk.

You can look, if you know where the uncertainty is coming from, you can actually build a portfolio where, say you have an I, a 20 item portfolio. With real estate and some ETFs and some, exposure to different sectors, some international exposure, if you model out where the underlying drivers are coming from for that portfolio and where the risks are, then you can actually, have them be orthogonal to each other.

You can make sure that the risks are coming from different. . And in that sense, even if you don't know exactly what's happening, if you've modeled the risks and underlying drivers properly, you could build a fairly robust portfolio where at any point, 15 of your 20 items are going up and five are going down, no matter what the macroeconomic conditions are.

Interesting. And I think that's really the principle, right? And so in a sense, we don't need to be perfect in our predictions. We don't need to be perfect in the for. to be able to build really good strategies for users to give the right sort of recommendations and, outperform markets. It's more that systematic approach that ends up being the, the core driver of that return.

23:38 BZ: So I have you for a couple more minutes and I have two more questions. One do you care to make a prediction now looking into 2023? A lot of people are, A little bit nervous about what they say is a looming recession. Give us a little predictions. What are you feeling as we turn the corner here?

 Alex Harmsen: I like the question absolutely right. It's core to the business and I'm never gonna say anything with, complete certainty. But we do, technically we've been in a recession for a little while now, obviously, all of the quarterly earnings over the last month or two have shown head counts, a down scoping and expectations.

We are seeing inflation coming down, even though it's one data point, in general, a fairly optimistic that this is, starting to get under control. We see the, unemployment numbers, starting to look better in terms of, the actions that the Fed is taking, are starting to work.

 Not including the tech sector though, minus the tech sector. We're looking higher level, right? And so I. Even a lot of the people we work with end up looking very specifically at sectors and like in reality, I think it's very easy for us to forget, us, us meeting, tech workers and people in the crypto space.

It's very right, very difficult sometimes to zoom way out and look at the industry as a whole, to think about oil and commodities and agriculture and manufacturing. And so in that sense, I. We're gonna be in a recession for quite a while longer. . And, the Fed in particular, is still holding the line very strongly that we need to get back to something much more manageable.

And very likely this is gonna deepen before it gets better. And into 2023, we're still gonna be in recession and then realistically, start climbing out of that in, end of 20 23, 20 24. It's hard to be able to call the bottom exactly. But this isn't gonna shoot up in, Q1 or q2.

BZ: Last question. I know that you've accomplished a lot in your career. You have a knack for focusing on these big hard problems that have a meaningful impact. What, who were your heroes? Who inspired you to go down and become the entrepreneur that you are? Do you have any sort of heroes in the business world that sort of had an impact on you?

Whether either you met them or you read about them? Who set you on this path?

 Alex Harmsen:  I, I think it's a great question. I think that, I don't think it's necessarily entrepreneurs and company builders that have gone through this. Maybe it comes from two places, okay. One of them is that I had a mentor in university who was an incredible astrophysicist and, spoke all over the world and contributed to some, really cutting edge astronomy and blazed his own path. Like he, he really one of the things I really admired from him is that he bucked the status quo. He decided, this is what I enjoy doing. Here's where I think I can make a unique contribution. And had a lot of fun doing that. And, partnered with all the right people and put himself in places.

To like really almost create his own luck, right? Like he created a lot of opportunities for himself as we went along. And then , I think separately, the going through Y Combinator, I think was very eyeopening because they would invite lots of speakers to come out. And it was very casual.

There was a couple hundred of us in the room. There was someone who was, a billionaire had built massive companies. He just spoke like one of us. He was a couple years away. He was on a slightly different path than I was. And I dunno, there was something very grounding about that.

And it made me think that, all I need to do is just be like a couple percent better than average, but every single day of my life. And not taking anything for granted, really using this like privileged position that I'm. and not squandering that and just continuously, every single day, just becoming a little bit better, a little bit better, a little bit better.

And I think that focus is really the difference between, bill Gates and the average guy, or Jeff Bezos and the average guy, right? , I think that's I think that's prob like both of those I think are like quite defining and something I think about like quite often. 

29:00 BZ: What's your advice for a young entrepreneur who maybe has this idea that maybe, perhaps he's in Y Combinator, perhaps he wants to apply to Y Combinator. What's your advice? 

 Alex Harmsen: There's something about that focus, right? There's something about not trying to do it all. not trying to do it all at once.

One of the things that I do like pretty religiously at the start of every day oftentimes just when I'm in the shower, is think through what are the three things that are gonna be most impactful? What do I wanna focus on today? And even though I end up doing, hundreds of other things and have, dozens of meetings, if I get those three things done, it's a successful day.

Prioritizing. It's the prioritizing and really thinking like, what is gonna move the needle, right? because I have, I have 422 emails in my inbox right now, but two of those emails are more critical than, the other 400 and, 20 of them. And so if I respond to those two emails and push those two projects forward, or poke this one person or have this one meeting, that's gonna have a hundred x impact compared to everything else that I.

And, zooming out, macro is like obviously the, the made, topic that runs to my mind. But if I zoom out and think what is actually impactful, what is actually driving the business forward, my own life forward, my relationship forward, then you end up having real impact then, the small rocks, end up sorting themselves out.

BZ: Awesome. Alex, this was a great conversation. 

Topics: Spice VC, FTX Bankruptcy, Crypto Regulation, Sam Bankman Fried,NFT ,Madonna, tokens,celebrity NFTs

Host:

Anthony Noto , Benzinga Editor @iamtonynoto

Featured Guest:

Tal Elyashiv, Founder & Managing Partner of SPiCE VC @TElyashiv

Tokenization is disrupting the financial industry. It is on a rapid growth path to becoming a multi trillion dollar industry.

SPiCE provides investors wide exposure to the massive growth of the Blockchain / tokenization ecosystem.

BZ: Hello, Tal Elyashiv. Welcome to Benzinga Interviews. It's nice to have you.

 Tal Elyashiv: Pleasure to be here.

BZ: So it's interesting that behind. Is a wonderful piece of artwork of Charlie Brown and Snoopy that you told me before we hit record that your daughter did. So for the listeners who might not be able to see it it's a beautiful painting.

And for those, watching this on YouTube or anywhere else where they have a visual it's obviously a wonderful work of art, and that ties into a lot of blockchain technology these days in the form of NFT. We will discuss on this show as I understand that you are an NFT expert, right? But before we get into that, I want to talk a little bit about Spice VC.

This past year has been a. Pretty much an ugly one for the crypto space anything related to blockchain. But when it comes to Spice VC you guys have a lot of good news especially for investors. So I'd like to talk a little bit about the First Spice Fund. , which you would do a great job in better explaining than I would.So what was the accomplishment with that fund that just closed? 

Tal Elyashiv: So Spice I our first fund that is focused on the blockchain ecosystem launched in 2018. By the way, it was also a tough time to launch because you remember that 2018 was a year where crypto went down significantly.

And the fund is fully invested at this point. It's a venture capital fund we invest in Companies that build significant components of the blockchain ecosystem companies that build platforms and services that we feel will benefit the. From the growth of this ecosystem. And most of the investment period where we invested in portfolio companies was 2018, 2019, and 2020.

We made investments in 17 companies. The performance of the fund is through the roof. The IRR is over 50% and the multiple of the fund is above Six. But I think the most significant achievement this year, given everything that happened this year in crypto and blockchain is that we made we just completed our second distribution to investors.

It brings the distribution to. Investment capital to 82%, which means that 82% of the original capital that was invested in the fund was already distributed back to investors' accounts. And they're still invested in a fund that is way above five x what they invested, which is pretty significant for a VC fund.

Pretty significant for a year like this. So this is great. And. We're now in the process of capital raising for Spice II. The second fund focused on the same ecosystem with the same investment strategy. I think more exciting times. What happened in the crypto and blockchain space this year actually positions VC funds much better in terms of investing.

Reasonable valuations. And I think that if we continue with similar performance we will probably end up with a much better performance for Spice II than Spice I

BZ: So say I'm an investor. I wanna get involved in this space, but I feel a little bit. in recent months because of the FTX fiasco and all of the bankruptcies that are now piling up.

What do you tell me? I have plenty of money to spend. I don't really, I'm playing a role here, but if I did and I wanna get involved in Spice VC, what's your pitch? What do I get? How do I buy it?

Tal Elyashiv: There, there are two things I'll say about the blockchain ecosystem. One, any portfolio needs to have some exposure to the blockchain ecosystem.

I'm not talking about crypto, I'm talking about blockchain ecosystem. Blockchain ecosystem is way bigger than just crypto. Crypto. It's just a sliver within that. And the reason is that it's a revolutionary technology that. Impact almost every industry, definitely every transactional industry we're aware of over the next 10 to 15 years.

Investment in that ecosystem is expected to produce more than 50% c per year for the next 10, 15 years. This. Phenomenal and unheard of in terms of investment in a, in an ecosystem or set of industries. And this is why every portfolio needs to have an exposure to this. The problem is it's a very new domain, relatively speaking.

It's very complicated. It's very broad. It impacts many industries. And technology keeps changing at a rate that is totally. If you compare it to the internet revolution, for example, we're 40 years into that revolution and it's not done yet. You were talking about a revolution that will take 10 to 15 years and where with the internet revolution, the basic technology remains the same.

With blockchain, the underlying foundation technologies keep. So it requires a lot of understanding and staying up-to-date in order to invest in this industry. And so it's very hard for investors to make individual bets on companies and have a decent shot at success. And, FTX is good. An example to to that investing in a VC fund gives you broad exposure to this industry through a team that is focused on investing in multiple portfolio companies. Spice I was 17 companies, Spice II is going to be around 30 companies. And so you are spreading your investment increasing.

Probability of seeing significant returns from that. The VC industry, by the way, in general, is very uncorrelated. To market movements. People are very concerned about investing in current market conditions. Need to be aware that VC investments are totally uncorrelated to the market.

So it's a piece of the portfolio that needs to be there. If you can afford to have that that will give you long-term returns that are uncorrelated to short-term market move. How? , and I'll say that the last thing about Spice II, in terms of the pitch, it's already the second VC fund that is focused on this industry that we that we manage.

The first one performance is stellar. And hopefully the second one will be the same. There are very few, if at all, second funds in this ecosystem. Most of them are. First funds, so they're still building their track record. 

8:18 BZ: So you said before that Spice II is probably gonna have 30 companies in it.

How do you find your companies? What do you look for in a blockchain startup?

Tal Elyashiv:  It's not very different than any startup. We look and it's very hard to say what's more important because everything is important. But team is paramount for success of a company. We invest in early stage companies, not very much at the beginning, but after a company already has a product and market.

Presence and their market indicators that you can look at, clients, customers, and so on. So we're looking for a business model that we feel is right and reasonable with where the market is going. We're looking for, we're looking for a company that is in a domain that we believe will grow.

Significantly over the next five to 10 years we're looking at technology and products that are unique in a team that we believe. With their business plan, they can really dominate their corner of the market. And there are a lot of environmental factors as well because every company is really a piece of a bigger ecosystem.

It's very important that they're. Business assumptions on what will happen around them, jive with ours. So we believe that their model is sound given where the market is going. But at the end of the day, it's also important that the team is one that we feel is a fit. For the business model is strong enough to be able to navigate the waters even if things change and they can still navigate success.

And this is no different in the blockchain domain than any other startup. 

10:30 BZ:So you mentioned something that I always try to see how people find talent in this space because like you said, it's a very young industry. How do you deepen your bench? What kind of experts does Spice have that other firms don't have?

I imagine finding true experts in the blockchain space, because it's such a young industry,

Tal Elyashiv: It is very difficult. I come for many years in the financial industry and other transactional industries. So lots of operational experience technology experience and business experience.

And I'm also a serial entrepreneur, so I sat on both sides of that table. And I've also been involved with the blockchain domain since 2016, 2017 very very deeply. Spice is the first fully tokenized Spice I is the first fully tokenized VC fund. Our token, our digital security was the first digital security in the world to.

Traded on a fully regulated digital security exchange. And we've done a lot of firsts in the blockchain domain. Not only as investors, but in actually using blockchain to further our our business and building systems around that. It puts us very much in the heart of the blockchain ecosystem.

We know the ecosystem from the inside. We have a very strong. Brand name within the industry. So obviously our access to talent and our access to companies is very different than any outsider looking in, into the ecosystem. But you're right finding talent in the blockchain domain is not easy.

And my co-founder and partner and. In Spice Carlos Domingo has been in this domain even longer than I have and is also considered one of the visionaries in the digital security space. And it's not just about blockchain. We have other partners that come from a.

Long venture capital investing and private equity investing. So the discipline and being able to look at companies and being able. Assist companies in growing and moving towards healthy exits and so on is also very very significant. So my Swiss partner Renee Eichenberger, for example, started and managed seven funds before Spice, ranging from 200 million to 10 billion in.

In assets. You build your expertise, not just around blockchain, but around investing in companies, helping them succeed and and so on, and screening companies and and so forth. So with your background, you've, like you said, you've done a lot across all different corners of the financial world in different industries.

BZ: Why blockchain? You could have done anything. , 

Tal Elyashiv: it's actually very interesting when we started Spice in 2017 and started looking building our investment strategy and focus and so on. It was the height of the ICO Period in the world. And we looked at this and it was clear to us that this is gonna go away because it's it's not gonna jive with regulations and so on.

But the technology struck us as a an amazing technology that will impact. Capital markets industries and coming from capital markets you either see it or you don't. But I saw it back then and it was clear to me that blockchain technology and distributed ledger technology has the capability to solve a lot of the problems of financial industries that became more and more complex.

As those industries became more regulations and as more regulated and as more players started forming in those industries. And blockchain technology offers very simple solutions for automating a lot of the processes that make those industries really complex. So we. Financial industries is a huge cluster on its own, and it was clear that other industries like supply chain management and and so on, are gonna benefit from this as well.

It, it is a domain that is worth investing in. I know that a lot of people back then were thinking crypto. As the main thing that that will come out of this crypto is what contributed blockchain technology to the world. But then blockchain technology came got a life of its own and it was clear to us that this will be a very significant domain to invest in.

And we were betting that it would be experiencing an a an exponential growth that is unprecedented, which was the case.

16:25 BZ: So Benzinga has this event coming up on December 7th and December 8th in New York called The Future of Crypto, and a lot of the dialogue at this event, they expect to talk about this past year and what happened, and cryptocurrency and blockchain, they're intricate.

Tied together as the technology that underpins cryptocurrency. 

What surprised you in 2022? What? What did we learn? Because looking back there was a lot going on. 

Tal Elyashiv: It's a mixed bag. It is a mixed bag. 2022 was a very eventful year, and it's not over yet. So we have another almost a little bit more than a month of potential eventful period.

But I think we've seen several things. One the cryptocurrency industry has grown. Really fast. And it's grown wild with no regulations, no oversight. And if you look at some of the things that happened you mentioned those events anywhere from the Terra Luna crash Celsius collapse blockfi.

And and there were a bunch of others, but now FTX, a lot of things have nothing to do with crypto. They have to do with lack of regulations, lack of transparency, lack of corporate governance, lack of financial experience and lack of fiduciary responsibility of people running those.

And fraud. A lot of this was plain fraud. And this the, I think the reason we see this more here is because crypto has grown so fast and was very attractive for bad actors and also because there were no regulations To speak off at a decent level for financial activity, because this is financial activity.

You can argue about what crypto really is, but the type of activity that takes place, whether it's banking or or lending. Or trading or providing investment advice or managing risk between investments and lending and so on, are very complicated domains that require a lot of oversight and a lot of experience.

And this didn't exist here, right? , we, the industry grew based on technology and automation, and much less about learning from the traditional financial industry that is learned a lot of things that were written in blood over the last 40, 50, 60 years. So I think what will happen now is some maturation of the crypto industry.

We'll see. Definitely more oversight than and regulations, although US is in a very strange place because of the kind of deadlock situation in the houses and so on. It's gonna be very hard to. Any meaningful regulation in the NA or any meaningful legislation in the next two years, I would guess.

But I would see much more focus on regulation and oversight in in the industry. And even good players, not just the bad players are lacking someone that will focus in and. Prescribe ways to to act. If you look at Coinbase, for example Coinbase is publicly traded, so they're under a lot of scrutiny and have significant reporting.

Responsibilities and so on. And much more transparency than any other player in the crypto domain. But most of the licenses are still money transfer license. It's not an exchange, it's not licensed as an exchange. It's not licensed as a as a. Someone managing deposits. It's not, and, but a lot of those activities really happen there, right?

So unless it's looked at this way and and managed that way, then risk exists that doesn't exist in parallel organizations in the traditional finance. We'll see that I, to me, if you ask me what the, what surprised me is the magnitude. And the speed in which things happen this year. And I think

I think anybody, including people who were predicting doom and gloom, I don't think anybody was predicting that fast of of the doom. Yes. But I, long term I think we'll see growth in. In the crypto portion of this market, we'll see much more institutional involvement.

And this will drive more oversight and and processes around things. And we'll see some changes in how crypto is run. That will make it more. Palatable to to more institutional investors. To me, what's, what was interesting is that if you look at the behavior of institutional investors, they're still focusing on the long term and still investing in creating crypto related capabilities.

There were news from. Fidelity, for example only a week ago about enabling free trading of crypto. We've seen news from. From Goldman Sachs with their digital assets categorization system, which is really significant here. All this investment is significant as part of maturing this market.

. So I think we'll see over time the recovery of this at what. I don't know. Nobody knows. I unfortunately don't have the crystal ball, but I think it will happen. But I think the interesting thing is that. Investment in blockchain capabilities, not crypto per se has continued full force.

Nothing has changed. Most banks, most financial institutions are focused on blockchain related technologies and adopting those capabilities within their processing environment. Whether it's in the securities industry where almost any major player is adopting blockchain technology for registration and for settling transactions and so on through payments, all the big payments players from.

MasterCard and and Visa to to PayPal and so on, are all engaged in blockchain technology. And they're not doing it because it's cool they're doing it because it is, . It's necessary. Absolutely. . And that circles back to why investing in blockchain, right?

24:30 BZ: I'd like to talk a little bit about NFTs. This year, the price of NFTs plummeted. We saw a lot of big companies over the past couple years get involved in this space. , you talked about institutional investors. They're in it for the long game. A lot of institutional investors are looking at NFT portfolios and ETFs.

It's definitely got a lot of people excited, but this year the price went down a lot. You had a lot of scrutiny and the board ape area and. I think Warner Media completely abandoned their NFT plans with CNN that grabbed headlines with no little to no explanation. And I'd like to read you a quote that I found from a blog that I liked.

So by Janice Greenwood, she said that “NFTs are the obvious next iteration in an art world that has become more like the stock market and less like the keeper of our culture's greatest creative treasures.” And I thought that was interesting because as an illustrator myself, and as you said your daughter is clearly an amazing artist. With that Charlie Brown artwork behind you, NFTs art, what is the point? 

I still think that it's not clear to the average person that this serves any benefit to. So NFTs blew out of proportion last year as in 2021. And I think the world forgot that NFTs are basically a framework.

Tal Elyashiv: NFTs are non-fungible tokens, and they're very different than the tokens that were used before, which are all fungible. And it basically says the token represents something unique. Okay, so it's just a vehicle. To do something. It's, it doesn't have a value on its own. It's a vehicle to do something.

And it started evolving in the art space, mostly because of digital art, right? The problem that it came to solve is in digital art. If I created the jpeg, how do I prove that? I'm the creator. And how do I prevent you from copying and saying it's yours, right? And the NFT basically said, I'm gonna wrap it in a token, and this token is gonna be registered on the blockchain, which is immutable, and then I can prove that it's that I, because I own it, it's mine, right?

And the date is the first date this NFT is written. So nobody can claim that they did it. Okay. But the NFT itself is just a container that is holding my art, right? In this case, if you're an illustrator, it can be an illustration. If you are a photographer, it can be a photo, it doesn't matter, right?

It can be a digital piece and it could be. Representing a a real-world piece, with the rights to that real-world piece that I can sell. And that means if I sell you the NFT, I also need to deliver the real-world art if it represents something in the real world. The value of NFTs should be driven by the value of the piece of art that you're buying.

And because it blew out of proportion and it becames the, rich person's the high tech person's Ferrari it got, NFTs, got value on their own because they're NFTs. But at the end of the day it's what they represent. And, it will come back to the reasonable situation where, what NFTs do is they create more accessibility to artists to artists, to their audience.

They help in establishing providence over pieces of art and so on. And also they facilitate some of the financial transactions. One of the concepts that were edited by NFTs. To this world where royalties to the creator that, go through the future generations and so on. So all these are very significant value propositions.

If you let things calm down and you look at the real value of what is it that the NFT represents, rather than an NFT is like, Value proposition on its own. And I think this makes a lot of this makes a lot of sense. I would also make a comment that NFTs as a framework are going to be extremely valuable technology solution to things we'll see them very useful in healthcare industry. It could be a concept that in the US one of the issues we've been dealing with is the lack of Lifetime healthcare record of people because we keep moving between healthcare plans and so on. This could be one of the keys to solving that problem and providing this.

And it has nothing to do with art. It has to do with the technology concept that wraps something that is unique. It's definitely used in supply chain management today already. For example a lot of. A lot of luxury good producers are using NFTs in order to prove providence and authenticity of items.

A good buying a Gucci or a Prada item, you get an NFT with it. And the NFT really proves the authenticity of that item because it goes back to the company's system. And you can see the whole chain of events that brought this item to. And it proves your ownership of that item. And it's used in the healthcare industry to approve authenticity of medicine in the pharma industry, the authenticity of medicine and the ability to track that these medicines have not gone through environmental exposure that voids their validity and so on and so forth. So it's a very useful concept beyond the art world. But I think that in the art world, it will still be very valuable to to creators and to collectors. And the fact that it calmed down is actually not a bad thing in the long run.

Because we needed to be, to go back to a rational way of valuing NFTs. . And remembering it's the art behind it. It's not the NFT itself.

30:59 BZ: So celebrities like Madonna who paid half a million dollars for the board ape at NFT, did they over pay ?

Tal Elyashiv:  In my mind, yes. But, at the end of the day what determines the value of collectables in the market?

And I think you can look at board apes as as NFT as collectables, and not just the pure art collectables are. Valued based on supply and demand. That's all right. Something is really valuable if there's someone who's willing to pay a lot of money for it. So the market will decide if Madonna overpaid or didn't.

Obviously when we recover from the crypto crash. But it sounds more like I love that you mentioned that the benefits that it could bring to industries like healthcare, because that to me makes a lot of sense. And in the terms. And I love that. It's a, it solves a problem, whereas in the art world, it's almost like the art of the commerce.

It's the art of the buy, not the artwork itself. That's correct. Making an impression on people. That's right. 

BZ: This has been an excellent conversation. I'm so glad that you took the time to speak with us today and I hope to keep in touch and have plenty more conversations as we look forward to 2023.

Topics: FTX Bankruptcy, Crypto Regulation, Sam Bankman Fried, INX

Host:

Anthony Noto , Benzinga Editor

Featured Guest:

Alan Silbert, North American CEO of INX

INX is a fully regulated trading platform for security tokens.

Anthony Noto: Alan Silbert, welcome to Benzinga Interviews. How are you keeping warm this crypto winter?

Alan Silbert : I'm an old timer in crypto years. I've been around the space since about 2013. And and I'm old anyway, so I was around for Lehman Brothers and some of the traditional world debacles. Yeah these crypto winters have a way of seasoning you or toughening up your stomach.

So if I've been through a few of them I think I probably felt worse. Maybe when Bitcoin was at a high of $1100, $1200, then went back down to, I think it was sub $200 at the time. And that was much earlier in the evolution of the ecosystem. So I think I remember feeling at that point that crypto might be killed off for good.

And after we survived that, that kind of bear market, that crypto wind I don't have that feeling anymore. I think we're definitely here to stay. This current crypto winter it's, yeah, it's very painful. things are happening that I would've really never dreamed of in the space.

And yeah it's gonna be a little bit painful. We'll come out the other side like we always do. 

Anthony Noto:It's interesting that you said you've seen worse times. And I think there's a bit of a tendency for folks to get hyped up in the moment and nervous and they forget just how far they've come.

And like you said, you've been in this industry since 2013 when it was, it's still in its early phase, so when you were in, when it was 2013, did people look at you like you. A little nuts going into this crazy field. 

Alan Silbert: Yeah, thought I was nuts . So it was, when I first got Introduced to Bitcoin, I, I thought it was crazy internet money and that it would be a fad, that it would pass, very quickly.

And when I first started buying Bitcoin, I used to go to the drug store. I used to go to CVS and you had to pick up the red MoneyGram phone and talk to an operator and say, I will Send $100 dollars, then you had to walk to cashier and give them cash. So we've come a long way from there. Yeah, it's, we're far departed from. $1100 to $200 would crash. Every, everything that's in the present is always more painful. Very difficult to see right now.

A lot of people have lost substantial sums of money which is very upsetting to hear. And yeah, it's, we have to rebuild trust in the space and and rebuild.

 3:33 Anthony Noto:Let me take the ball there. I know I've. I gave you a look at your Twitter, and I saw that one of your tweets I guess in the past 24 hours, you talked a little bit about having a lot of discussions over the past week with lawyers, investment bankers distressed companies and you spoke a lot about digital securities and how they could be used in conjunction with the bankruptcy process, and.

The FTX was certainly a huge bankruptcy. So two questions. 

One, give us a tight explanation of what it is for first time listeners. I know most of listeners out there know exactly what's going on, but just in case give us a tight explanation of what it is that happened at FTX and how it is that INX can help.

How are they in a unique position here to help?

Alan Silbert: Yeah, sure. Absolutely. Yeah. What happened with FTX? I Things have been unwinding in the space since, late last year. Bitcoin and most of the cryptocurrencies hit all time highs late 2021. And then all the markets turned, the traditional markets turned, equities turned crypto markets turned and know we started entering a bear market territory.

 And that start, that started the snowball rolling downhill of of bets starting to unwind and um, going people's bets, leverage bets going against them. And then when the the stuff really hit the fan was, the Terra Luna stable coin. It was an algorithmic stable coin.

Was created and it was supposed to always pegged one to one with the US dollar, and there were billions of dollars riding on this stable coin. It was the rails that that money was going back and forth on in the crypto space. It was very trusted that the algorithm behind it would keep it pegged at a dollar all the time.

And people also, Leveraged on top of it they lent this stable coin leveraged it. And for whatever reason there was a bank run on the stable coin, on the Terra USD coin. And it unraveled the whole the whole theory there unraveled the coin. I think something like 40 billion was lost.

And that started undoing some firms in the space, like three arrows. Capital was one of them. Celsius was one of the other ones, and this probably ended up leading to FTX's demise because. The space is all very interconnected. As we've seen. It's similar to when Lehman Brothers failed and everybody saw how the sausage was made.

And behind the scenes there's all these interconnected relationships and lending and exposure. It's very similar. Many companies in the space touched three hours capital touched Celsius, touched FTX. They had money custody there. They were lending to them, they were borrowing from. And at high leverage, not regulated in many cases.

And yeah, and the major themes are there's tons of uncovered leverage, a lot of greed regulators were asleep at the wheel. There, it's still a small relatively speaking. It's a small ecosystem with interconnected players. There's no bailouts coming and, there's no government to bail out the space.

And and a real lack of risk management by a lot of companies in the space. Having like huge bets through arrows capital or Celsius, leverage bets on top of it. So these are kinda like all the general themes.

 Anthony Noto: And what happened with FTX? Did they just take, did they just make bets even riskier?

What was their deal that compared to what was going on with Terra? 

Alan Silbert: Yeah. Yeah, the fact that FTX had some of the like worst controls, business management skills, systems, anything as it's unfolding, it's an absolute mess on. Everything else that I've mention. They were making bets gambling with company, with client funds.

So they were dipping into their client's wallets, taking their money, and then betting them on their associated trading platform, betting them somewhere else in the space, and, leveraged bets on top of it. So it just exacerbated things. So yeah this is a giant mess, so it's top of everything else.

You probably have, fraud stealing client funds. Yeah it's an Absolute. Mess. Some of the other players in the space are just unwinding because their bets went the wrong way. But FTX kind of took it to a next level. And the company it's it operated they put themselves out there as a regulated company, but it's become very apparent that they were really no regulators watching them whatsoever.

They were operating without really any controls. They had no real board. I think for the last several months, I think the CEO, I think Sam was the only board member. So there were no real like board controls. The financials were getting audited by some weird metaverse auditing firm. And to, so to go back to INX, to back up to the beginning of our history, we were set up in late 2017.

Which was at the end of, one of the last debacles, which was the ICO boom and bust era. And our founder, Shy Datika saw the ICOs that were just getting thrown together with a white paper and tossed up against the wall and everybody was buying into them. And, people lost tons of money in them.

And and so Shy wanted to build a crypto trading and a digital security platform just from the ground up. That was totally regulated. I think like in contrast, a lot of the trading platforms in the space have been formed by techies really? By by coders and traders. So it came with, that came with a certain benefits, but they didn't have a traditional like regulated mindset.

Yeah. And like Mount GOs was the first example. It just was put together by coders and gamers and. Like no controls there. It was mismanaged. So one of the first things we did is we pushed a, the first digital security IPO through the Securities and Exchange Commission.

It was a fully registered IPO for the general public, cuz we, we wanted to it was to show that we could do it, that we could offer an investor to an investment to the general public to mo. And give them all the protections that they should have in the crypto space. So we, we have our financials audited by young, not like a weird metaverse auditing firm.

We set up with, independent board of directors, majority independent board of directors. We have incredible board of directors really. One of the members is David Wid, who is a former vice chairman of NASDAQ. We and we did a fullblown prospectus, so it was 200. 50 pages of all the disclosures and the risks.

We, it was the INX token that we sold in this offering. The token holders would get certain benefits they'd get a 40% percent cut of our net profits. They'd get first liquidation rights to our insurance fund. If in case of a change of control or a bankruptcy, they insurance fund would get paid out to them.

We gave them like a good mix of different benefits. And, along with all the trappings of a real public company we're pub we're public in the US and Canada. And so fast forward back to the current day. We've been through this process of registering a security token.

And now you have all of these companies in the space that are distressed or filing for bankruptcy. And in the US in the bankruptcy courts, they, it offer. Fast track through the same process that we went through. The bankruptcy courts will allow you to fast track a security token. And in a security token for the bankruptcy process can, is pretty valuable.

So instead of just saying to the creditors, alright, we'll give you 5 cents in the dollar and be on your way similar to what Bitfinex did back in the day when they got hacked, you can offer them a security token. The number of rights you can give the ways you can structure it are just infinite.

You can say, okay token holder, creditor we're gonna give you this token representing how much you lost and for the next five years. You'll get paid out X percent of profits until you're made whole, or, you'll get a coupon payment of x percent per year. You can structure it a million different ways.

The bankruptcy court helps you fast track this security into existence and you have all of the guardrails of a, a regulated instrument. So it's. It's proven very valuable in the current environment. And yes we've been speaking with a lot of different companies that are in distress, investment banks lawyers, and yeah they're very busy right now yeah we're educating a lot of them.

 14:22 Anthony Noto: Indeed. But I gotta ask you there you said on Twitter, this is an absolute mess. This bank bankruptcy will take forever when they unravel this dumpster fire. I wouldn't dream of operating a startup like this, much less a multi-billion dollar company. And before we hit record, you called INX, one of the cleanest shirts out there.

Are we at voting of bad players off the island moment where it should we be grateful that this FTX scenario happened. And I mean that, I know a lot of people are hurt and they lost money, but is, like you said you've gone through this. Do you have a little bit of a deja vu where this system can emerge better. In a larger scenario when Lehman Brothers collapsed, like you mentioned maybe we owe a debt of gratitude to this happening so we can, so the industry can get better. Yeah. I would hope so. It's I don't want overbearing regulations. I think, and I think what happened here was more.

That regulators were asleep at the wheel and just weren't paying attention, really. And yeah, but regulators have been paying attention though. They're, they, we have senators that talk about it quite often about how this industry needs to be Reed in, but then you have Sam Bankman freed, slept on the cover of magazines One second.

it feels within one breath he's, he's got nothing. And now we're calling him his business, a dumpster fire where he was pretty much glorified, not that long ago. So I think regulators were talking about it for a while. What would be over regulation in your point of view?

Alan Silbert: It's right now, to operate in the US is. Is pretty onerous. So it's already a burden, honestly, we, we roll up to, I don't know, probably a hundred different regulators, between our, SCC registrations and our FINRA license and money transmitter and even through state blue sky processes and, it's like to international regulators.

It really needs to be streamlined. It needs to go the other direction. So this FTX debacle is gonna set us back a few steps. In the US every, we need more consistency of regulation really. Instead of that you have. Many different regulators that have different rules and different thoughts.

But here, yeah, through political influence relatives with high up friends. Yeah. Sam worked his way into the upper echelons and was like their favorite person in Washington . So yeah. But But yeah, it's, we took the slow and boring route.

We've been plotting along over the last few years accumulating licenses and, to go back to what, what I mentioned earlier about being the cleanest shirt. Yeah it's I don't, there's very few companies like ours in the world that have the licensing that we do that are, very clean above board.

With the kind of controls, practices, licenses that we have in place. Yeah. And it's, I speak to people now, they're like surprised, but a company like this actually exists. Even some of the, like regulated players in the states in the crypto space are, not operating with the licenses that they should.

Yeah so licenses became more valuable. Absolutely. So in that case, do you consider this, is that the Silbert lining of this FTX fiasco? Because, like we were talking about before, too many people went the shortcut route. You guys went the hard way and now you're seeing it pay off.

Yeah, no, I mean for INX, absolutely. I'm sorry it had to happen this way in the space. But, we're happy to step up and help and use our expertise and and we have one of the few places probably would, probably the only place in the US that you can trade a security token 24 7 365 amongst the general public.

So for companies in bankruptcy that wanna issue a token, like a recovery token, we call it as part of the bankruptcy, we're one of the few places that could trade after the fact. Because, you might, you could issue a recovery token, let's say to a creditor, and then, know, there might be a million creditors like in ftx, just all, all the account holders.

You can, we can issue added recovery token with certain attributes and then we can start trading it on our trading platform or our ats. And maybe a creditor doesn't, they don't wanna hang out for five years and hope for the best. They just wanna get out, but then they can sell it to a willing buyer.

It just just, it, it gives 'em uh, instant liquidity to the claim if they want it. With no restrictions whatsoever. It's, it'll just be a freely trading security very soon after, they close up the bankruptcy process. So it, yeah, it's, INX can offer a lot of different avenues now. It's gotten really interesting.

Ironically, the bankruptcy process is speeding through security matters. It's a, it's a funny irony, but that's, when we did our IPO, it took us 953 days to get from the beginning of our first draft of the prospectus until the SEC kinda cleared us. Yeah, so this, the bankruptcy court makes it a much, much faster process to get us security into the hands of the public.

20:22 Anthony Noto: It was interesting Senator Pat Toomey said this wasn't a failure of crypto, it :was a failure of people And I'd like to get your thoughts on this, why wasn't it a failure of crypto? To the average person, to the average person of cryptocurrency, almost feels like really complicated algebra or calculus, which most people hate.

And the industry hopes to catch on with the casual consumer. So why wasn't this a failure of crypto? .

Alan Silbert: Yeah, so I, yeah, I actually, I met Pat Toomey last week at a conf, at the blockchain association policy summit in DC which happened like immediately afterFTX. It was a very timely conference.

And yeah, I heard him make that speech. What happened at FTX could have happened. At a widget factory, right? They just they just had a lot of money, or it was like, or Enron, it was just a lot of money in their hands that they used inappropriately. They operated in an unregulated jurisdiction in an unregulated way.

And they just use greed and mismanagement to totally implode this company. Yeah. There's nothing about crypto that made this happen, really. It was more of just the unregulated nature, greed, mismanagement. If you take Bitcoin is the most extreme example of decentralized Bitcoin itself, there's nobody that turns the levers really.

It just operates on, its. It just goes on. It's, it's always up, it's always generating blocks approximately every 10 minutes. Bitcoin can't steal your funds, can't leverage your funds, can't mismanage, you can't, can't abscond with your money. And I think when people say it's not the fault of crypto, if in a purely decentralized model, these things don't happen.

You don't you don't have to trust anybody because things operate on their own. So that's, yeah, that's my thoughts on that.

22:42 Anthony Noto: It's interesting you mentioned Enron because the Enron fixer John J. Ray III is quite a name. Yeah. Is is the one sort of overseeing FTX now.

What needs to happen for heat, for FTX to even come back? What does that look like? Can you, is there any, can you give us a quick curtain razor into that bankruptcy process? Cause I've covered bankruptcy. Yeah. I actually just love factories and stuff and banks and, but this is something a little bit foreign to me.

Alan Silbert: Yeah, I was actually, I was just listening to the bankruptcy court one of the hearings before where they were actually discussing just making sure the names of the clients of FTX were redacted were hidden from any kind of paperwork that's floating around. I think it was the Celsius, I think it was in the Celsius bankruptcy, where information got inadvertently, pushed out.

Or maybe not even inadvertently. Maybe it's just because it's part of the public bankruptcy process for that, that wherever the jurisdiction is. But in any case, that's what they're talking about today. But yeah, they, yeah, they found, they brought in the Enron fixer because this is gonna be, very complex.

Yeah. And I think you probably saw he already characterized this as like the, Historical bankruptcy and it's gonna be a mess. And that's because, first of all, they FTX or chart is, it's a site to see. It's hard to follow all the lines.

So you have to dig in all the different entities where money was moved possibly or taken. Illegally who owns what entities have value left in them that they can they can liquidate for the creditors, right? They're the company's record keeping. Like I said before, the record keeping controls, everything was like an absolute mess.

He's gonna have a his hands full. I'm sure there's many forensic accountants and everything in there. He's gonna really have his hands full, unwinding everything and seeing where money is. It's yeah, I think even I saw even today that like Sam's parents I guess the company bought them like a place in The Bahamas or something, so they have to That's right.

Sell the deed to this condo back to the estate. So there's just, there's so much crazy stuff going on. It's gonna take a while, unfortunately. To, to work through the process. But, again, this is another situation like a recovery token. It could work if there's, I believe I saw they have a billion dollars of cash or a billion dollars of assets there.

There's something there. You could form this into a recovery token for the creditors. There, there is a way to do it. It's bankruptcy in the us as of right now. There, there is a way to do this in the form of a recovery token. Yeah, it'll just it'll take some time to work through, for sure.

26:08 Anthony Noto: We have an event coming up in December December 7th, December 8th, here in New York City where I am. It's called the Future of Crypto.

We have a long list of really great guests who are gonna be talking about the industry, and it's the event is called The Future of Crypto. In your opinion, what does that future look like? What kind of a crypto startup will survive in 2023

Alan Silbert: I think the foundation has been built in the space to the point of where there's no turning back. Like it's, the crypto is absolutely here to stay. Blockchain technology is here to stay. There's gonna be like a cleansing, it's gonna fall back to like its foundation and its anchors.

Like typically the anchors have been like absolutely Bitcoin because it's like a purely decentralized crypto that's just never gonna die. And also like an Ethereum, which you know, which seems to regulators have blessed is not a security, which, has it's own features as well.

And the things you can do with an Ethereum, a smart contract are, pretty amazing as well. Like our token runs the Ethereum blockchain. It's an ERC 1404 token. We can build things into our smart contract a white list. So our token can't get moved anywhere unless the center and receiver whitelisted, it's governed by the blockchain.

So a lot of these, like technologies and features are are, Or pioneering like the next iteration of FinTech and they're not going anywhere. Yeah, you've, you gotta do things the right way going forward. It's regulators are gonna be, scrutinizing everybody under the sun that mentions crypto in their business plan.

You have to do things right from the get go. 

 Anthony Noto: Why aren't companies doing it right from the get. . What? What? Why not?

 It's expensive. It's expensive. Yeah. Expensive.

  Anthony Noto: Not as expensive. As expensive as buying a house in The Bahamas?

 Alan Silbert: No, not as , I just it's just the harder, people take the easier route. This is what they, what the easier route. And that's, that's why they, that's why they do it. And we just we were just very patient and deliberate and, it's a part the fabric of our company is just, we wanna be in a regulated space and so we did everything the right way.

 Anthony Noto:You mentioned before, regulators are gonna be scrutinizing the space even more Now, say for example, you have five minutes to chat with Senator Elizabeth Warren, someone who's been pretty vocal about it. What do you say to him?

 Alan Silbert:Yes. Yeah, she's a funny one to choose because yeah, she's not particularly friendly to the space. This administration has been difficult in general in that things really haven't moved along. Along. It's the politicians they have their constituents.

I think Elizabeth Warren has a couple kind of traditional world like money transmitter or payment companies that are her donors. But she's not necessarily like the person to go and talk to . We try in a space, but a lot of it's just about education. You just, you just, you constantly have to educate them and reassure them and the reassurance parts what's gonna take a couple steps back and like the trust there's been.

A lot of goodwill done by companies in the space to educate and to get us to where we are today. So we're gonna take a couple steps back. We have to all kind of regroup, and just go back, try to work together to have sane regulation that protects clients, but doesn't make it totally onerous to operate in the space.

I consider the US to be on the more, more onerous side just because of all the different regulators and everything. And we try to push them regulated like the internet, the internet was given. Free reign to innovate in a certain way.

But yeah since there's money involved here, just gets more complicated. 

30:57 Anthony Noto: Cause the industry does feel like it's being given to us like bad tasting medicine at this point. So what needs to happen for it to be in this. Sweet spot where more retailers adopted cryptocurrency as a form of payment.

What needs to happen for it to go mainstream? Because like you said, you've been in this industry for 10 years now. It doesn't seem like it's mainstream. A lot of articles seem to come out where it says, oh, it's mainstream. It doesn't feel that way. Especially if you look here in New York and when you go shopping online, it doesn't feel like cryptocurrency has really hit a stride.

And this year it has definitely not helped.

Alan Silbert: Yeah, I can't emphasize enough like how far it's come because it's a dramatic improvement from when I started in the space. But yeah, there's still a long way to go. The ability to use like like Bitcoins easily, we're getting there.

It's. All the boundaries have to, the UI UX has to be very easy for people to be able to use it like they use Venmo or anything else. So we're getting there. It's a problem in the US that there's no do minimus tax exemption for sending Bitcoin. Right now if you buy a cup of coffee with Bitcoin, that you have a capital gain on is technically tax.

Things like sensible things like that have to get through the government that have to be passed into law. But yeah, I think, it's got to when I first got into the space what got me enamored with it was that it's democratized money. You don't have to trust your government, the US government just, prince trillions of dollars every month.

It's kinda gotten outta hand. You can have your own money. Billions of people in the world are unbanked or unbankable just because the the banking regime will only bank certain people with a certain that meet a certain set of rules. You probably have a few billion people that are just unbanked or unbankable.

It's only fair that you have some democratized money and that people can, I don't know, send back to their family in Africa or South America just with their phone for a few dollars instead of going to Western Union and getting gouged for 10 or 20% and that's the core of the whole space.

It's not going away. There's this kind of democratized money and and. Trustless that we try to build into the, these kind of protocols. Yeah, it'll, it's definitely, it's gonna take some time. Like right now, if you send money back, let's say you wanna send money back to your family in Africa and billions of dollars flow back to people's home countries every year.

It's a major money flow. Right now if you send money back to your family, Africa. Okay, so now you sent them Bitcoin, you sent them, so now what do they. They have to be able to, put it into local currency or they have to be able to use it for goods and services.

These kind of things just take a long time to to develop and, to, for the ecosystem to develop. And it takes a lot longer than 10 years. We're, we've come very far, but know, it's, it takes a more time. 

 Anthony Noto: Last question. Like I said, we have an event coming up on December 7th, December 8th.

I hope to see you there. And a lot of people come to you for answers. You're clearly an expert in the space, you know so much about it, and you have that old world expertise. In a pre cryptocurrency world. What questions do you have? Everybody comes to you with questions, but is there, are there any questions that you have?

What peaks your curiosity? What would you like to see answered? What would you like to see people discuss at an event like ours and in other corners of the cryptocurrency?

Alan Silbert: I think we need to put all of our brains together about what the, the best way is to move forward in a regulated way while not squelching innovation or slowing down the space and there's ways to do it. So I think it's when I talk to people, I just try to, pick their brains for what, how they think this is best accomplished.

Do we need to consolidate things under one regulator? Do we need to I don't know, have state authorities all form a coalition together and have a more efficient path to licensing? So yeah, a lot of my kind of inquiries go to just, The space is it's gonna, everything's gonna be under a regulatory umbrella.

So it's everything that I'm curious about. It is, how can we push things forward in a regulated way, in an efficient way, and so that we can bring this technology to the world and then keep progressing it and keep these bad actors out

Anthony Noto: keeping bad actors out. it sounds INX is a good actor. So I appreciate you taking the time to speak with me today. It's been a pleasure. 

Alan Silbert: Thanks so much. It's been pleasure for me too. 

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