7investing and CryptoEQ in October 2022: How Institutions Are Approaching Crypto - 7investing 7investing

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7investing and CryptoEQ in October 2022: How Institutions Are Approaching Crypto

The lead advisors of 7investing and CryptoEQ host a monthly conversation for subscribers to better understand how cryptocurrencies and equities are colliding. In this month's "Collision Course", the teams discuss how financial institutions like Fidelity and Blackrock are embracing cryptocurrencies.

October 30, 2022

– Advisor: 7investing Team

Industries: Financial Services  

7investing and CryptoEQ recently announced a partnership, to help investors get a better consolidated view of the opportunities in both equities and in cryptocurrencies. 7investing provides its top seven stock market recommendations every month, while CryptoEQ provides its top-rated cryptocurrencies.

The two companies are also joining forces and publishing a monthly Collision Course conversation, to discuss the intersection of equities and crypto.

This month, 7investing CEO Simon Erickson chats with CryptoEQ’s VP of Business Development Ameer Omar about the following topics:

  • Why Ameer joined CryptoEQ and what he hopes to accomplish with the organization?
  • Why institutions are suddenly adopting cryptocurrencies?
  • BNY Mellon will now hold cryptocurrencies, though Fidelity and Blackrock have chosen to partner with Coinbase
  • The role of brand and PR in developing cryptocurrency solutions
  • The impact of the FASB adopting Fair-Value Accounting for cryptocurrency gains and losses
We hope you enjoy this month’s Collision Course conversation, and we’re making it free for everyone! We always publish each of our video conversations — and also the complete transcripts —  for 7investing subscribers as monthly Advisor Updates. CryptoEQ publishes a written recap of the conversations in their monthly subscriber email newsletter, which you can subscribe for using this link.

Publicly-traded companies mentioned in this conversation include Blackrock, Block, BNY Mellon, Coinbase, Fidelity, MicroStrategy, and Robinhood. Cryptocurrencies mentioned include Bitcoin and Ethereum. 7investing or CryptoEQ’s advisors may have positions in the stocks or cryptocurrencies of the companies that were mentioned.

Transcript

 

Simon Erickson  00:00

Hello everyone and welcome to our October 2022 Collision Course conversation between 7investing and CryptoEQ. There’s a lot going on where there’s an intersection between equities and cryptocurrencies and we want to capture the essence of that on this podcast. I’m 7investing founder and CEO Simon Erickson. I’m joined by a new guest on our call this month. Ameer Omar is the Head of Business Development at CryptoEQ. A new hire for the company. Ameer, welcome to the show. And welcome to CryptoEQ.

 

Ameer Omar  00:30

Yeah, thanks. Thanks for the welcome, Simon. I really appreciate being here. Been circling this day on the week. So really excited to talk with you and just share more about what’s going on at cryptoEQ and investing this collision course.

 

Simon Erickson  00:44

I would love to start with that we have a lot to talk about on the show. We’re going to talk mostly about institutional adoption of cryptocurrency cryptocurrencies. And we’re also going to talk a little bit about the FASB. We’re gonna talk a little bit about economic expansion in Europe and how they’re adopting crypto as well. But maybe let’s start with with — Ameer, if you don’t mind me asking — we really have liked partnering with CryptoEQ. 7investing covers the equity side of this equation, you guys certainly know what you’re talking about when it comes to crypto currencies, that’s led me to really enjoy partnering with you. But what brought you to the firm? What was it that brought you to CryptoEQ?

 

Ameer Omar  01:21

And it’s a great question. Really, it came down to the actual research that CryptoEQ performs and delivered. I remember looking over their, their dashboards or indicators there. You know, if you haven’t visited the site, you know that we have a freemium version for, you know, for investors looking at different opportunities, and then just the breakdown that makes it really simple, digestible, you don’t need to be a engineer or software engineer to digest information you can really, they make it very simple. You know, I think our tagline is, you know, crypto is complex. And we make it simple. And definitely the reports and the dashboard. The web interface was super simple. And there’s just a bunch of the team was just very hospitable. Very encouraging. And so, yeah, that’s what really attracted me to the brand. And and so yeah, here I am.

 

Simon Erickson  02:16

Absolutely. Well, I encourage everyone listening to check out cryptoeq.io, if you want to hear about all the good things that Ameer just described.

 

Simon Erickson  02:23

Let’s jump into the story that I wanted to make as the foundation of this month’s call, which is that we are seeing a lot of development on institutions adopting crypto. What does that mean? When I say institutions, I mean, this is people that are handling people’s money, and giving them options, which is traditionally been stocks or bonds or market money market funds or other asset classes. And the starting to say, yeah, we can start buying Bitcoin and putting it into your accounts.

 

Simon Erickson  02:51

We have seen some developments in the summer, where we saw a partnership with BlackRock and Coinbase. BlackRock, of course has got more than $10 trillion of client assets, a lot of those in ETFs, a lot of those in passively traded funds, that are now saying, yes, we want to partner up with Coinbase; Coinbase Prime specifically, to give our institutional clients a way to trade cryptocurrencies. This is interesting, because you’re starting and then it a couple that also with Fidelity. Fidelity has also worked with their own institutional clients to allow cryptocurrency trading to also working with Coinbase as well. That’s kind of the partnership angle, you’ve got large clients that are partnering with companies like Coinbase, who already have the infrastructure to do the trading, you know, the routing, the offline storage of the cryptocurrencies, whatever it might be.

 

Simon Erickson  03:44

But then you’ve got others that seem like they’re wanting to be building it themselves. We just saw an announcement from BNY Mellon, this is America’s largest bank that now is saying we’re going to build a lot of infrastructure, and we’re gonna allow our clients to start holding crypto currencies, and other crypto assets in their accounts as well.

 

Simon Erickson  04:03

And so, Ameer, I think that maybe the key conversation I want to have here is the buy versus build discussion that’s going on in institutions, right. We talked about $40 trillion in retirement assets in the US. You know, a lot of that being in those accounts that we just talked about those companies we just talked about, but a lot more that haven’t fully embraced crypto yet. What are the advantages or the disadvantages of partnering with someone versus just building things like this yourself?

 

Ameer Omar  04:31

Yeah, I think it comes down to a control aspect. There’s definitely control aspect there. You know, Coinbase there’s definitely in their best interest to partner with a Blackrock. Fidelity, Stripe, Robin Hood, you know, they formed it was called the crypto trade group to combat you know, fraudulent transactions. So, anything that puts Coinbase’s shoulders with these you know, big brands that you know, are known for compliance very trusted in in the market really helps Coinbase as you know, they’ve been in the target at sec and seeing, seeing the developments there. And so just even that partnership being announced, you know, their stock price Coinbase, stock price went up 40% That one day, and so especially a down year down quarter for them, I think it really, really helps them have that have been out.

 

Ameer Omar  05:26

And then on the Blackrock side definitely gives off liability, they don’t have to worry about getting hacked, don’t have to worry about all these kinds of security issues that probably aren’t their forte, obviously, they’re very well funded. So they can, you know, buy the research, right, they can build it themselves, but I think just offloading to Coinbase and other big brands that’s trusted by the market, by most, most retailers, and institutions sees that. So I think there’s definitely an angle there for that you see how it really can, you know, boost Coinbase’s brand, and also, so it’s kind of mutually beneficial on that on that side.

 

Ameer Omar  06:03

And then on the other end, you know, BNY Mellon, you know, has a very, you know, public image of conservative, you know, and so I think they just want to be able to control those transactions and see it, they partnered with chain analysis earlier this year in February. And so chain analysis would literally just traces transactions on a blockchain so you can see where things going. And so that I’m sure they’re, they’re obviously using that technology, with their platform, so they can see what’s going on working trapping in it helps be compliant to protect against any fraudulent transaction. So I definitely see there’s a public, you know, definitely a PR, you know, feel to all these partnerships. Obviously, people are getting value in these institutions are getting value, but there’s definitely an angle where you can see, you know, how it’s gonna play out with the regulators, and just kind of different brand personas.

 

Simon Erickson  07:00

It makes a lot of sense, Ameer. And I want to double click on that on the brand and the persona and the PR in the image. Because we talk a lot on the equity side of things about, you know, founders and CEOs, you know, what, what is the person who is at the helm of this organization trying to achieve? And you’ve got kind of, I think that that is the story here of who wants to be the trendsetter versus who wants to be the follower that doesn’t want to miss out on this trend?

 

Simon Erickson  07:27

Yeah, you’ve got Jack Dorsey and Block you know — previously Square — that has just gone all in and Bitcoin loves it, you know, evangelist almost on how much he loves cryptocurrency. And he’s been quick to say, yes, we can develop Cash App to support crypto trading, we can put crypto assets on our balance sheet, and we’re going to find ways to do this. We’re going to be the innovative trendsetter. And that’s great.

 

Simon Erickson  07:48

But you also have the risk of regulations, you have the risk of projects that don’t work out, you have the risk of volatility in the cryptocurrency markets like we’ve seen recently. I mean, it’s great to be an innovator. It sounds awesome. But you’re also kind of walking out there on the gauntlet, where there are spirits being thrown, you know, at your face from things that are not yet fully understood. Versus Fidelity’s CEO Abby…I believe it’s Abby Johnson is her name. And she’s she’s always been very customer focused. Some would say conservative, but others would certainly say, you know, she knows her clients, and she understands what they need. And she’s been very responsive to when they’re starting to ask for cryptocurrencies. Do they want to be the innovator that their customers are kind of looking at and saying, oh, you know, maybe maybe we’re not as comfortable with this, as someone like a Jack Dorsey might be able to do it’s a different business, a different model. It’s a CEO that understands their customers, but that might not necessarily mean they have to build everything themselves.

 

Ameer Omar  08:44

Yeah, absolutely. I think there’s definitely ways no point in reinventing the wheel, as you know, most people would say, and so there’s definitely options out there for big companies like Fidelity to get to onboard and not have to rethink it. And like I said, you know, there’s, I think it just goes back to the point of liability, and trying to protect yourself at the same time where, you know, exchanges, crypto exchanges, Coinbase, Gemini, Kraken, you know, US base, they get that additional exposure, they’re willing to take on that risk 100% To get access to, to more to more clients.

 

Simon Erickson  09:21

And my goodness, how hard would that be? Right? If you want to build this yourself, you better be right, because you don’t want to be in the news or, yeah, Mart hackers in this space. Yeah.

 

Ameer Omar  09:30

Smart hackers. And then just all like you just said earlier, all the regulatory uncertainty. You know, that’s going back and forth. It’s, you know, it’s definitely, definitely a tricky place. And especially on the exchange side, you know, there’s once once the government decides to draw a line in the sand, if you’re on the wrong side, you know, it’s going to be a very, very tough environment. So yeah.

 

Simon Erickson  09:54

I mean, I think we saw we saw some of this you would point out to me earlier right before we started recording to Europe, you know, the financial institute nations in Europe are starting to embrace crypto as well. Was there a recent development that we saw on that is I feel like there was something just happened?

 

Ameer Omar  10:06

Yeah, there’s a recent bank. And exchange started to provide crypto assets up to 100 Crypto assets on their platform, believe it’s called and 96. They’re based in Berlin. So it just goes along with the theme. But you know, and you’re across the board, you know, you’re not United States, but this one’s based in the UK, in Europe, that, you know, there’s just greater and greater adoption, everybody’s trying, everybody knows that people want exposure to these digital assets. And so, who is you know, like you said, you know, the trendsetter, who’s a followers, and right now seems like a big wave in a bear market to just build and get in now on I guess what’s cheap, was, I would say, and so you can kind of see whatever, hopefully, there’s a, you know, a bull market or starts to bounce up, you know, hit the bottom that, you know, you can get more and more exposure as it starts to grow. So, seems like that’s kind of the consensus right now, we’ve seen seen around, but usually that kind of scares, you know, if everybody’s come to consensus, okay, like, where, where’s the Alpha? Where’s, you know, where’s, Where’s, where’s the differentiation to that really makes a difference.

 

Simon Erickson  11:14

And you’ve got to think this is great PR for Coinbase, right? To have an announcement like that you’re partnering with BlackRock? $10 trillion? And I mean, you’ve got to assume they’re blasting that PR announcement everywhere they possibly can.

 

Ameer Omar  11:25

Yeah, pretty much. I mean, if you do any sort of search, yes, I think, you know, just typing Coinbase. That’s the number one thing on there on the SEO, and then many other outlets, pretty much copy and pasting, you know, or they had releases or public release. So definitely something very proud to report.

 

Simon Erickson  11:42

It’s really neat, you know, it’s a company Coinbase, for those that are less familiar with their business model, you know, that’s typically been charging pretty hefty fees, right? Every time you make a trade or a transaction, whether you’re buying or selling, at least as a retail investor, it’s different for the institutions, but mostly for retail investors. They’ve been charging a several 100 basis points per transaction. But they’ve backed it up. And they’ve said, you know, we’re the most secure platform, you wouldn’t have a history of having security issues, you know, there are others out there, you can trade for much lower fees. But we’ve got the security figured out, we’ve got the trust and credibility figured out. And then on top of that later on now, the institutional clients signing on board. When you think about things like that, and there are other other options in every industry, there’s certainly zillions of brokerages you can you can trade with stocks, but that brand that PR that trust that credibility, that’s really important. If you’re trying to choose who you want to do business with, to buy and sell cryptocurrencies, I think I think it was a big PR win. Even just having this partnership there to show that the Coinbase is for real.

 

Ameer Omar  12:48

Yeah. And I also, you know, want to mention that the beauty of crypto is that it can, you can learn how to do the security on your own. With decentralized finance, if you’re, you know, is you can learn to be your own custodian. While crypto, you know, most people aren’t comfortable with doing that yet, you can use a platform like Coinbase, you can use a trusted platform that you would like to use to, you know, have your crypto assets on, but there’s definitely an space where this was very attractive for most people to come to Kryptos. Because you can do your own custody of your own self custody, you know, they have hot wallets and cold wallets, we can talk about that later. But you know, having, you know, cold storage, which pretty much would be equivalent to like having, you know, money under the mattress, but it’s digitally on completely unconnected from being online, and you have your password saved away. So there’s, it just depends on what people’s needs are.

 

Ameer Omar  13:47

But I think, you know, from an institutional perspective, you know, in our conversation right now, yeah, there’s tons of options are people trying to list these digital assets, but as a retail person, you have the choice? Do you want to you can do it yourself, or you can have, you know, somebody hold the custody for you and, and know, the risk with both. So I think is just a really, really cool thing to see. You know, obviously, the adoption, having a centralized custodian on these exchanges. I think it’s a great fit for most people, but there’s also an option for people learning how to manage their own money, which I think it’s kind of like the wind for CryptoEQ and 7investing is educating people how to read the markets, and you know, and do well, I think that’s that’s kind of I wanted to mention.

 

Simon Erickson  14:35

That’s right. That’s right. And like you said, it’s winning on both fronts, right? You’ve got 100 million registered users on Coinbase. Right now, the do it yourself investors, but asset size, you know, the size of those accounts, maybe maybe less than $10,000, right, maybe $5,000. Today, that’s significantly smaller than the average asset size for a fidelity or Schwab account, which is where those retirement accounts have grown for decades for several of their customers. You know if those now have options to put five, seven 10% into cryptocurrency exposure, and you’ve got the tools so institutional managers can kind of balance out, you know, what’s the risk? How is this correlated to other assets to bonds to stocks, things like that. That’s that’s what the Blackrock said the world and Fidelity Institutional managers are really interested in. Great to see the story developing great to see them the institution’s embracing crypto, I’m here.

 

Simon Erickson  15:24

I just had one other story I wanted to kind of pass by for this episode that we had here today. And that is accounting, Everybody’s favorite subject, most exciting subject of all, but I think it is one that we should talk about, which was that the FASB, the Financial Accounting Standards Board has now approved companies to use fair value accounting for the cryptocurrencies that they hold.

 

Simon Erickson  15:47

What does that mean? So if you are a company like Tesla, or MicroStrategy, who have embraced crypto and said, We’re going to put Bitcoin or any other crypto asset on our balance sheet, traditionally, you held that as an intangible asset, if it decreased in value significantly, you need to report it at least once a year as a write down of that asset. But now, if we’re actually doing this market in the market, if we’re actually doing fair value accounting, you can actually fluctuate the value of those assets on a quarterly basis. And it could even It could even impact income statements, earning statements and reported earnings that the company is reporting. So this is kind of a big deal for companies that might other than just dabbling, you know, with a few million dollars here or there just to get it on the balance sheet. If you see companies like Michael Saylor and MicroStrategy, that are really going all in on Bitcoin, if they’re not just treating them as intangible assets, long term assets, but shorter term fair value accounting assets, this could cause some fluctuation in reporting earnings. And I think that that’s something that as investors we should be watching and keeping an eye on.

 

Ameer Omar  16:56

Absolutely, that is a great insight. And I will thank you for dumbing it down for us non non accounting natives.

 

Simon Erickson  17:04

So it’s a neat one because, you know, there’s so much there’s getting to be so much noise in the earnings statements. Now, you know, 7investing always says think long term, but we’re not ignoring the fact that things like foreign exchange rates are impacting whether a company hits its quarterly earnings or it misses some you know, in other things like you know, there’s sometimes one time charges that that mess with the the the GAAP reported numbers. A lot of companies have just said, you know, we’re going to do this non GAAP, we’re going to report adjusted earnings per share instead of GAAP earnings per share. And this is the next evolution of that if like, are we going to have a adjusted earnings per share minus cryptocurrency trading? You know, if there are certain companies that do this, I mean, stuff like that we should I think we should consider it might not be a complete game changer. This is still super early in the story, but it’s kind of like, you know, put the mark in the sand here that this is where it begins. And we might look back on this several years from now and see that it really made an impact.

 

Ameer Omar  18:04

No, absolutely. I think it’s something that you have to be aware of in evaluating where we’re going going forward in the market. And so that is, I agree with you, 100%.

 

Simon Erickson  18:17

Well, once again, welcome and congratulations to Ameer Omar, the Head of Business Development at CryptoEQ. Ameer, had a lot of fun with this conversation! Looking forward to having more with you in the in the near very near future.

 

Ameer Omar  18:29

Yeah, Simon, thank you so much for having a conversation with me today. I look forward to more.

 

Simon Erickson  18:34

And once again, for anyone who wants to learn about crypto currencies, check out cryptoeq.io. And of course, if you’d like to look at our equity analysis, check out 7investing.com. That’s a wrap for today’s edition of our October 2022 Collision Course conversation. We’ll be back again with you again next month. In the meantime, take care, be safe, and we’re here to empower you to invest in your future. We are 7investing.