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Evolving Money: Blue Chip Meets Blockchain (Sponsored Content) · Bloomberg Intelligence

• 0:00
  Speaker 1: Since you're a subscriber to this Bloomberg podcast, we thought
• 0:03
  Speaker 1: you'd be interested in a sponsored podcast called Evolving Money,
• 0:07
  Speaker 1: produced by Coinbase and Bloomberg Media Studios. It explains how
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  Speaker 1: institutional investors are adopting the world's newest asset class crypto.
• 0:17
  Speaker 1: Here's a recent episode.
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  Speaker 2: It's early days, right, It's only more recently that we're
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  Speaker 2: starting to see true institutional adoption start to take hold.
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  Speaker 3: That's Amanda Gotti, the chief investment officer for PNC's Asset
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  Speaker 3: Management group, and she's right, true institutional adoption of crypto
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  Speaker 3: is just starting to take hold. That's what this series
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  Speaker 3: is about. Who are the big players adding digital assets
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  Speaker 3: to their offerings? How are they doing it? Are they
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  Speaker 3: partnering up or going it alone? And why are they
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  Speaker 3: doing it now? Are they trying to get ahead of
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  Speaker 3: the crowd or are they reacting to client demand. Well
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  Speaker 3: we're going to answer those questions and more in this
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  Speaker 3: season of Evolving Money, a show that explores how institutional
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  Speaker 3: investors are adopting the world's newest asset class crypto. Hi,
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  Speaker 3: I mean gi Lao. I've been a financial reporter for
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  Speaker 3: decades and the people I'm talking to this season, are
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  Speaker 3: amongst the highest ranking decision makers in the finance industry,
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  Speaker 3: and that starts with today's guest, Amanda Agati. Now Amanda
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  Speaker 3: leads the Investment Strategy group at P and C Bank.
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  Speaker 3: This is a financial services company with roots that go
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  Speaker 3: way back to eighteen forty five. That's about one hundred
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  Speaker 3: and eighty years ago.
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  Speaker 2: Now.
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  Speaker 3: Between their historical roots and their two hundred and fifteen
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  Speaker 3: billion US dollars of assets under management, they are a
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  Speaker 3: bedrock financial institution, the epitome of old school. So what
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  Speaker 3: is an old school Titan doing in the crypto space?
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  Speaker 2: Well, it's just sort of the next natural evolution of
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  Speaker 2: our investment offering. I mean, we spend a lot of
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  Speaker 2: time looking at the multi asset universe, and we're very
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  Speaker 2: much capital allocators. We're in some ways generalists. We're looking
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  Speaker 2: at public markets, private markets, equities, fixed income, alternatives, commodities,
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  Speaker 2: structures of various sorts, and so crypto feels like just
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  Speaker 2: the next natural evolution of the multi asset universe. We're really,
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  Speaker 2: i think paid and expected by our clients and the
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  Speaker 2: investors that we serve to understand where the edge is,
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  Speaker 2: where the next wave of financial innovation is coming from.
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  Speaker 2: And so, you know, a few years ago we were
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  Speaker 2: kind of kicking the tires on what crypto looks like
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  Speaker 2: as an industry. The regulatory environment had shifted in a
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  Speaker 2: very unfavorable way, and so it sort of shut the
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  Speaker 2: lights off on some of the areas that we were
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  Speaker 2: exploring from a crypto perspective. But with a new administration
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  Speaker 2: and a very different regulatory environment in play here, it
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  Speaker 2: just made a lot of sense for us to pick
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  Speaker 2: it back up again. We think it has staying power,
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  Speaker 2: and so we're trying to understand where we, as a
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  Speaker 2: more traditional financial institution, show up in the crypto industry,
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  Speaker 2: how we show up, and how we create access for
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  Speaker 2: our clients, because our clients are really interested in it.
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  Speaker 3: When you bring it to your institutional level colleagues, okay,
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  Speaker 3: and you're having these conversations and you're all discussing, we
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  Speaker 3: got to bring crypto to our clients. That must have
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  Speaker 3: been some very interesting conversations. What were those conversations, like
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  Speaker 3: bringing it to P and C.
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  Speaker 2: Well, it's fun to look back on it, but at
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  Speaker 2: the time they were somewhat challenging conversations. I mean, this
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  Speaker 2: is the way the investment business works, right, It's almost
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  Speaker 2: never unanimous. There's always Monday morning quarterbacks. There's a million
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  Speaker 2: different points of view on one particular investment idea or solution,
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  Speaker 2: and so it took a lot of I think conversations
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  Speaker 2: and internal debate, particularly as it relates to the regulatory
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  Speaker 2: backdrop and some of the uncertainty around what's considered bank
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  Speaker 2: permissible or not right. As much as as much as
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  Speaker 2: we want to lean hard into being at the forefront
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  Speaker 2: of innovation and lean hard into new financial technology and
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  Speaker 2: that sort of thing, we are a very regulated entity.
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  Speaker 2: We are traditional financial institution, and so this set of
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  Speaker 2: the outer bounds of most people's comfort level right when
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  Speaker 2: we think about risk, compliance, legal, cyber security, etc. So
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  Speaker 2: it took a lot of conversations in hand holding to
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  Speaker 2: get everybody on board with the idea of what we
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  Speaker 2: were trying to do.
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  Speaker 3: So what got it over the line? Then, what was
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  Speaker 3: the philosophy or the approach that got people on board.
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  Speaker 2: This is not do all things and be all things.
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  Speaker 2: This is literally creating access through a really strong strategic
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  Speaker 2: partnership with coinbase, Right, it made perfect sense to partner
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  Speaker 2: with them to connect our clients and create access to
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  Speaker 2: this new opportunity set. I think there are a ton
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  Speaker 2: of benefits institutionally speaking to start heading down this path.
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  Speaker 2: We learned how to connect to a completely different trading platform.
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  Speaker 2: We're learning how to operate in twenty four seven trading environments.
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  Speaker 2: We're looking at different types of you know, AML and
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  Speaker 2: cyber related guard rails. We're going to look at and contemplate,
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  Speaker 2: you know, other coins beyond Bitcoin. You know this, This
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  Speaker 2: sort of opens the door to what is possible as
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  Speaker 2: it relates to stable coins. It was important for us
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  Speaker 2: to take that step so that we can start to
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  Speaker 2: learn and interact with this completely new and different asset class.
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  Speaker 3: What's driving the demand now in terms of creating new products.
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  Speaker 3: Is it coming from the opportunities that you see internally,
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  Speaker 3: does it come from the marketplace or both.
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  Speaker 2: So there's a little bit of a push pull in
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  Speaker 2: terms of our organization wanting to lean further into this
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  Speaker 2: financial innovation, but also to some degree our clients kind
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  Speaker 2: of asking for and wishing for advice and guidance and education.
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  Speaker 2: Like what do we think about this financial innovation? I
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  Speaker 2: think what we're hearing and what we're seeing and what
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  Speaker 2: we are planning for is that we need multiple avenues
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  Speaker 2: to access crypto exposure for clients who are interested in
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  Speaker 2: pursuing it. So some will go direct right, they'll use
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  Speaker 2: our solution. They'll they'll interact with the coins. It might
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  Speaker 2: be Bitcoin, it might be ethereum, it might be so long,
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  Speaker 2: it might be something else entirely different. There are others
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  Speaker 2: that you want an easier, potentially easier path, and so
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  Speaker 2: I think the advent of some of the ETFs that
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  Speaker 2: we've seen have made such a difference in terms of
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  Speaker 2: ease of institutional adoption. It's easy to incorporate an ETF
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  Speaker 2: directly into an existing multi asset portfolio, So I think
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  Speaker 2: that's an opportunity. One of the areas that we've spent
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  Speaker 2: a lot of time on over the last few years,
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  Speaker 2: separate and apart from the strategic partnership that we launched
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  Speaker 2: with Coinbase and the crypto for Clients solution that we developed,
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  Speaker 2: is really in private markets. Our institutional clients in particular
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  Speaker 2: often get asked, and this is like endowment and foundation
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  Speaker 2: nonprofit type of institutional clients often get asked, can you
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  Speaker 2: take a highly appreciated crypto gift? What would you do
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  Speaker 2: with it? If a donor were to give you a
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  Speaker 2: large crypto gift, what do you do? And today it's
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  Speaker 2: hard because they have to go set up an account
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  Speaker 2: somewhere to accept it and convert it to FIAT and
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  Speaker 2: then maybe diversify into other types of exposures. I think
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  Speaker 2: that's a natural place for the evolution of this offering
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  Speaker 2: to go. So in MVP one, we're not really handling
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  Speaker 2: transfers in the way I think our institutional client base
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  Speaker 2: would like to see. So that's on the roadmap. You know,
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  Speaker 2: to incorporate ethereum into the offering naturally takes you down
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  Speaker 2: a rabbit hole of staking, yield farming. There's a decent
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  Speaker 2: number of elements around what it means to incorporate ethereum.
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  Speaker 2: I think our clients are very interested in what staking
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  Speaker 2: might look like and how that shows up within our offering,
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  Speaker 2: so that that could be on the roadmap for you know,
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  Speaker 2: MVP two and beyond.
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  Speaker 3: When you look at risk return correlations and liquidity, what
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  Speaker 3: does the data tell you about adding crypto into any
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  Speaker 3: diversified portfolio.
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  Speaker 2: So we only know so much at this point, but
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  Speaker 2: based on what we have seen so far, it is
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  Speaker 2: very much indeed an uncorrelated asset, so there is diversification
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  Speaker 2: benefits to be had. There's a little bit of a
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  Speaker 2: scarcity element to how various blockchains and coins are constructed,
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  Speaker 2: so I think that adds over time to potentially the
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  Speaker 2: valuation story and the relative attractiveness over time. So we
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  Speaker 2: do think that there are definitely benefits and unique attributes
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  Speaker 2: of crypto as an asset class that can add value
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  Speaker 2: in a multi asset portfolio context. The challenge I think
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  Speaker 2: at the moment is this volatility component we we see
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  Speaker 2: is about four times the volatility of public equities, and
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  Speaker 2: so it's not for the faint of heart. So when
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  Speaker 2: we think about incorporating into portfolios, that's one of the
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  Speaker 2: major cons right, how much is a client or an
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  Speaker 2: investor willing to see some whipsaw in terms of portfolios.
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  Speaker 2: There are definitely benefits to it that you have to
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  Speaker 2: be able to stomach somewhat of a wild ride at
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  Speaker 2: times too. It's not a straight line higher kind of story.
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  Speaker 2: So we're just trying to be thoughtful about what we
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  Speaker 2: think the big catalysts and the backdrop for the industry
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  Speaker 2: might be and where the path forward lies before we
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  Speaker 2: start making a formal recommendation around it. We really tend
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  Speaker 2: to be very long only and buy and hold again
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  Speaker 2: across the multi asset universe. So when we take positions
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  Speaker 2: in portfolios, they are very high conviction recommendations and they
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  Speaker 2: are built over a period of time, so I think
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  Speaker 2: that's an important start place. We're very targeted and very thoughtful.
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  Speaker 2: We're not hasty about making decisions, and I think that
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  Speaker 2: naturally applies to how we think about the launch of
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  Speaker 2: the crypto solution that we created for our clients. That
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  Speaker 2: was a very thoughtful and targeted and methodical approach. It
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  Speaker 2: wasn't sort of hastily put together. Anytime we find a
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  Speaker 2: secular investment opportunity, a secular theme, a trend AI is
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  Speaker 2: a good example of this. We think crypto potentially is
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  Speaker 2: another one of those that has a really long horizon
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  Speaker 2: and a really significant but extended innovation cycle. Those are
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  Speaker 2: the areas where we want to pick our spots carefully
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  Speaker 2: and then continue to build over time.
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  Speaker 3: The discussions within PNC started with questions about investing in
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  Speaker 3: this new asset class, but they very quickly expanded into
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  Speaker 3: something much larger.
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  Speaker 2: So there's all this focus on bitcoin ethereum et cetera.
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  Speaker 2: But what about the underlying blockchain technology and the use
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  Speaker 2: cases and the new business models that are being born
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  Speaker 2: off of that. It's really it feels a little bit
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  Speaker 2: like the advent of like Web two point zero. It's
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  Speaker 2: hard to remember what it was like when we didn't
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  Speaker 2: have uber or Lyft as an example. Now it's so commonplace.
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  Speaker 2: And so we've spent a lot of time over the
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  Speaker 2: last few years looking at private market investments, venture capital
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  Speaker 2: in particular, that has been primarily where it's been concentrated,
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  Speaker 2: but other elements of the private market or alternative asset classes,
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  Speaker 2: you can gain exposure to crypto business models or new
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  Speaker 2: companies that are being developed in sort of the crypto
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  Speaker 2: industry and landscape, and so for a decent number of
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  Speaker 2: years that was the primary way for our clients to
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  Speaker 2: access blockchain technology and crypto oriented exposure. That's fine, but
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  Speaker 2: not all clients are eligible, or able or willing to
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  Speaker 2: invest in private markets. You lock up capital for an
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  Speaker 2: extended period of time. You have to be of a
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  Speaker 2: certain size and scope and eligibility to even invest in alternatives.
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  Speaker 2: So the things that we have done since then have
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  Speaker 2: really been designed to create access and democratize crypto for
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  Speaker 2: our clients. Then I think the big one is how
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  Speaker 2: much are we going to learn out of the twenty
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  Speaker 2: four to seven trading environment for crypto and when does
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  Speaker 2: that start to apply to traditional markets? Are we going
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  Speaker 2: to get to it. We've talked about it a lot, right,
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  Speaker 2: We've talked about the major exchanges extending their trading hours.
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  Speaker 2: We obviously have you know, overnight in futures markets, you
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  Speaker 2: know some level of activity there, But does this ultimately
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  Speaker 2: spill over and catalyze the twenty four to seven trading environment.
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  Speaker 2: I don't sleep that much as it is. I definitely
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  Speaker 2: won't sleep in a twenty four to seven trading environment,
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  Speaker 2: but I think it does make sense to be thinking
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  Speaker 2: about what that looks like in a not too distant
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  Speaker 2: future state. So I think there's a lot for traditional
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  Speaker 2: public markets to actually learn from the crypto industry. That's
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  Speaker 2: how we're thinking about it, right, We're a traditional financial institution.
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  Speaker 2: We're learning a lot from the crypto industry. But I
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  Speaker 2: think it goes both ways, and I think in the
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  Speaker 2: end there's going to be some really powerful innovations that
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  Speaker 2: come out of this, and it's still very early innings,
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  Speaker 2: so we're really excited about the future.
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  Speaker 3: Adoption by institutions like PNC is clear evidence that the
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  Speaker 3: crypto evolution is taking hold in the largest and most
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  Speaker 3: influential financial companies in the world. But the road isn't
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  Speaker 3: always so smooth. Amanda was pretty clear about the challenges
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  Speaker 3: she faced trying to earn internal support, and that's going
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  Speaker 3: to happen anytime a big organization tries to evolve their
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  Speaker 3: processes and their offerings. So what's coming next. To get
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  Speaker 3: an answer to that, I asked Amanda for her wish
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  Speaker 3: list moving forward.
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  Speaker 2: It's less about me creating a wish list for new
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  Speaker 2: innovations and new products and all of that as it
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  Speaker 2: relates to crypto, and much more about bringing within the
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  Speaker 2: walls of PNC a lot of the capabilities and exposures
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  Speaker 2: that exist today. I don't need long term wish list
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  Speaker 2: of ideas to keep me busy. I have so many
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  Speaker 2: things that are sitting right in front of me to
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  Speaker 2: kind of lean further into in terms of getting our
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  Speaker 2: client's access to and getting sort of up the learning
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  Speaker 2: curve around all things crypto. That know, it's going to
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  Speaker 2: keep us busy for you know, the next year or
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  Speaker 2: two it doesn't. It doesn't mean that we aren't forward looking.
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  Speaker 2: Of course we are. But I think there's a lot
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  Speaker 2: to chew on, certainly in the new year as it
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  Speaker 2: relates to just some of the existing capabilities. But we
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  Speaker 2: just need to lean further into adoption and exposure in
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  Speaker 2: some of the capabilities that have been developed today.
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  Speaker 3: I mane you lal On behalf of coinbase in Bloomberg
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  Speaker 3: Media Studios. Thanks for listening. There are a lot of
• 16:38
  Speaker 3: other illuminating conversations in our feeds, so be sure to
• 16:41
  Speaker 3: follow Evolving Money on Spotify or Apple podcasts.