0:00 spk_0

Welcome to a new episode of the opening bid unfiltered podcast. I’m Yahoo Finance executive editor Brian Sai. Like I always say, this podcast that will make you a smarter investor, no doubt about it, and you’re gonna get smarter on all things crypto. We’re having, uh, an interesting year and an interesting time. Uh, joining me now is John D’Agostino, head of strategy at Coinbase Institutional. John, good to see you.

0:21 spk_1

Good to see you, Brian. Thanks for having me. Um,

0:23 spk_0

before we get into the world of, of Coinbase and crypto, um, how did you get here? Because this, you didn’t actually start at

0:29 spk_1

Coinbase. No, uh, so I used to be in the rough and tumble commodities world. I was head of strategy for the New York Mercantile Exchange and helped take that exchange from, uh, 800 or so guys running around screaming and yelling with crazy hand signals. My first.Project actually was to help build the trading app to stop using pick cards because back then they would use literally physical pick cards and by the way, this is like 1920. This is like 2008. And, um, they would do these have these pick cards and, and they cost like hundreds of thousands of dollars a year in stationary costs. And my first job ever was to help code, uh, oversee the coding of of an app that would replace the pick cards.And I saw firsthand how angry people get when they see the beginning of their eventual, I wouldn’t say replacement, but their eventual need to change. And so it’s kind of cool seeing it twice, but anyway, did that for a long time, was in the hedge fund world, traded commodities, and then I started teaching at MIT and about 10 years ago I wrote a paper on a very seminal moment in crypto history called the Dow hack. And in that paper I describe what I believe to be the pros and cons of blockchain.Um, more pros and cons in my view, and I described myself in that paper as a cynical enthusiast around blockchain, and I got a phone call from a really wonderful guy who was running a big hedge fund called Polychain, and, uh, basically they reached out and said, hey, we, we like this idea we don’t want, we don’t like cynics, we have, you know, we, we don’t want people who are drink the Kool-Aid, we want cynical enthusiasts.And I learned about crypto, uh, from my position at MIT and also uh from just some of the best investors in the world that led to a phone call from Coinbase and uh the rest is

2:06 spk_0

history. What was it like those early days, uh.At the Mercantile half watching people yell and scream like what was that?

2:12 spk_1

I don’t think they’llsee that now

2:13 spk_0

we’re like the older guys in theroom.

2:15 spk_1

No, look, I, I, you know, I look, I was a poor kid from Brooklyn, um, I got into Harvard Business School, um, and it was supposed to be, no, then it was just like, right, my life is set. I’m gonna go to Goldman Sachs. I’m gonna do that, and I got this weird offer by an amazing, amazing icon of industry, Vinny Viola.Uh, he, I want a fellowship to go to business school, and he heard me speak and thank the people who gave me the fellowship, and he said, What are you gonna do for a living? I said, I’m gonna go work for a big investment bank, uh, and he said, no, no, you’re gonna work for me. And I remember Dick Grosso, remember Dick Rosso Dick Rosso was sitting next to him and he looked at me and went, Do it, kid, and I showed up at his offices versus the investment bank that Monday and took a shot and I got to learn about.Exchanges and the power of price discovery, and I kind of never looked back.

3:05 spk_0

How does that set you up for what you’re currently doing?

3:08 spk_1

One thing that keeps me calm, because as crazy as crypto can get, as volatile as the asset can get,It is nothing compared to natural gas options. It is baby time frolics. So, so how, so I have this sort of almost, well, just literally the volve just doesn’t move as much. Um, I mean that wasn’t, I wasn’t around Bitcoin in the very early days when it was up and down 90% in an hour, um, but I’m used to.Idiosyncratic assets, and I’m used to the markets around them, the way they trade, um, and so the volatility doesn’t I I learned, I feel very fortunate to learn about trading from the commodities guys because they taught me at a young age that volatility is not risk. There’s a component of risk, but it is not risk, and it’s often used as a synonym, standard deviation or volatility around a mean is used as a synonym for risk, but the reality is,We would all vastly prefer a highly volatile asset that trends upward over time to a low volatility asset that trends downward. And people always say to me, well, how do you, how can you feel comfortable having assets like whether it’s, you know, I’ve heard this for years, commodities, hedge funds, tech stocks, crypto, how can you feel comfortable having that in your retirement portfolio? My answer is always the same, which is if you can comfortably with a risk-free rate, satisfy your retirement requirements.Absolutely, that they’d be insane to do anything else, but if inflation is beating your retirement goals, the money in your checking account or your stock portfolio is not gonna beat inflation or will not meet your retirement goals.The riskiest thing you can do is not put risk assets into that pool. So it just comes down to nothing is promised, nothing is guaranteed, and if we want to achieve these returns, you have to intelligently model out that risk.

4:56 spk_0

I had, uh, at our invest event here at Yahoo Finance, we had, uh, I sat down with Eric Trump and he gave me a good, he said something to me I didn’t really reflect on it real time because you’re doing the interview and he’s like if you.If you can’t stomach the volatility, don’t be in crypto, right? To me, that sounds like good advice.

5:14 spk_1

And you could, you could extend that advice to, I think any high alpha asset.Uh, so yes, uh, no, I don’t want to scare away, I, I’d rather, it, it is good advice, it’s correct, he’s 100% right. I try to educate people to the degree I can on finding their own comfort level within a risk asset and distinguishing, again, not to repeat myself, but distinguishing between upside volatility and downside volatility. Um, also, uh, and this is a fairly recent.Phenomenon from an institutional perspective or even a retail perspective you can actually earn yield on these assets. One of the criticisms about gold and other assets is they’re non yield producing. Um, well, now you can actually, uh, stake or loan out your Bitcoin or Ethereum oralana, and you can earn, you know, on a low risk basis you can earn mid single digits or high single digits.Um, so you have a great store value, you have a great technology infrastructure, you have a uh improving regulatory market environment, and you also have the potential to earn a little bit of an income while you’re holding on to that asset. So I think it’s the reason why mostOf the smartest commodities investors I know, when they most famously, Paul Tudor Jones, um, who had the pleasure of serving on a board for, for, for a number of years. Um, when they’ve stepped back and said, OK, we think inflation, we think debasement and money printing is going to be our biggest problem over the next 10 or a huge problem, 1020, 30 year horizon. Um, how do we hedge against that? And the reality is there’s no one right answer. Gold is great, it’s wonderful, so is other precious metals, so is a basket of commodities, so is maybe a basket of real estate.But none of them are as good as a weighted average portfolio that includes Bitcoin, and they’ve all discovered that when they’ve done the math. So,That’s what I would suggest people think about when they’re stomaching the short term. And also I’ll say on this topic of volatility is don’t get too excited when things look good either. Dollar nothing goes up in a straight line some things are new, some things aren’t. Dollar cost averaging is just a wonderful concept. It’s like it’s a compounded interest.

7:17 spk_0

You’re literally in the trenches with crypto and Bitcoin. Help us understand what exactly is driving the sell off right now. What is happening?

7:27 spk_1

So it’s always I’ll, I’ll I’ll I’ll hedge by saying two things quickly. One is, as a, as an exchange, we don’t make price predictions. We are a price discovery mechanism. Uh, two is, um, I’m not an asset manager, and, and to some degree you should not trust when people who don’t have skin in the game tell you. Now what I can tell you is that we have, and I have greatInsight into what the best asset managers think. So I’m about to tell you is the consensus view from some of the folks who are not just in the trenches like me, but they’re in the trenches putting capital at risk.It seems like it’s driven by a couple of things. One is just exhaustion. We had a massive run up going into October 10th, um, Bitcoin hitting all-time highs. Just mathematically, things can’t compound at 100% every 6 months ad infinitum, they’ll be larger than the y’all,

8:12 spk_0

it’s not normal.It doesn’t,

8:13 spk_1

it just doesn’t work that way. And and any asset linear interpolation, which is the taking of two data points and extending out of line to infinity, is the killer of every trading.Firm, um, or I should say not trading firm, they’re, they’re smart enough not to do that, but every, every sort of, um, retail investor that gets hurt generally gets hurt by believing that trend lines gonna continue infinitely. It would be larger than the US economy in less than 10 years, right? So some, some of it’s just like it just things have to settle every now and then. Um, technically what seems to be going on to some degree is, uh, OGs, these large whales, these are people who bought Bitcoin at like 10 cents or $10 or $100 you know, 10 years ago.Um, viewed that 100K and all-time high as a time to start diversifying and selling and selling so you’re seeing a shift from high, very, very high net worth retail old holders to institutional.Um, and institutional includes though, the ECF platforms. So that’s one element, um, a bit of exhaustion, second element, um, a bit of a, I wouldn’t say let down, but we had all this incredibly positive news coming out around uh regulatory, uh, regulatory um clarity. We had, uh, the government shutdown, which, um, if you believe that Bitcoin, uh, and other cryptos are a hedge against excessive money printing.Well, leading into a government shutdown is bad for that thesis because governments don’t print money during shutdown. So now that we have that resolved, um, uh, we, we have uh uh now wesol but hopefully we’ll see, um, during the next, uh, when we, when we understand how how much money the US government’s gonna be printing, we’ll see a renewed interest in that trade. So, um, there’s no one answer, but, um, I think exhaustion.Bit of a letdown from some really good news leading into October and OG’s diversifying probably is directionally correct.

10:01 spk_0

Are you a bigbeliever in, uh, I think this is Bernstein put this one out that, uh, we see these sell-offs every 4 years, hence they happen.

10:08 spk_1

So this is every 3 years. Uh, so yeah, so we have a 4 year historical 4 year cycle and we’ve seen down years in 1418, 22, uh, followed by meaningful up 2 to 3 year up year periods. So there’s a bit of consternation in the Bitcoin community because, you know, we’ll see how the year ends, but this would be a 3 versus 4 year cycle. Um, you know, man, I’ve been around long enough in these types of volatile assets to know as soon as you think you have it figured out, you don’t.I always pull back to bare principles, basic principles. So what, why can’t, why am I sleeping at night fairly well, um, when my, when my eight year old isn’t coming in and and punching me in the face.Um,Nothing’s really changed since the all-time high. If you just step back and think about structurally, uh, in fact, you can argue the news coming out about Citibank, JPMorgan, both leveraging stablecoins at huge scale. The Czechoslovakian National Bank has come out and announced they will be the first Eurozone country to purchase Bitcoin for the treasury.Um, clarifying rules from the IRS. Harvard Endowment announcing they own more Bitcoin than gold. All of those things are structurally very, very positive. From the exchange point of view, uh, we’re not seeing a massive increase in open interest in a futures market. CME, you can check it yourself. I was always taught early on a declining price market accompanied by a rapidly declining open interest means the market is breaking down structurally. People are exiting the exiting the market forever.When I look at Bitcoin, I see the number of active Bitcoin wallets, roughly the same as it was 3 months ago. I see both CNE and Coinbase Futures open interest, again, taking down a little bit, but not nearly in line with price direction. And so I go back to the very, very basic principle of if, if I like apples,I don’t like them less cause they’re on sale.And so if you like this asset, you like it more.If you don’t like this asset, if you’ve never liked this asset,You now have the microphone for a few months or a few weeks, we’ll see how long, uh, and enjoy that enjoy that moment.

12:11 spk_0

Uh hang with us, John. We’re gonna go out for a short break we’ll be right back on openingbid unfiltered.All right, welcome back to Opening bid Unfiltered here at the Nasdaq and Time, Times Square talking all things crypto with John D’Agostino, head of strategy at Coinbase Institutional. So when.There was a lot of retail investors that bought cryptos at the top this year.What should they be doing in in and thinking as we get into the new year?

12:43 spk_1

Well, I hope that what they bought was not their entire the entire position on a dollar base of what they were planning on spending. So every time I’ve been asked about this, um, during bull markets, bear markets, whenever it is, again, really any idiosyncratic asset, any volatile asset, um, even one that you expect to go up over time, dollar cost averaging as your friend. I mean it’s just that I, I don’t, I don’t, I’ve been working in the hedge fund space for 20 years almost, um.I don’t know any. I’ve known the best investors in the world. Um, none of them think that they can mark a time, and if they think that at any period in their career, they getSlapped in the face by the market really really fast. So I, I genuinely hope these people took that advice, and if they did, if that was an opening position, whatever their intended investment plan was, if that was an opening position, the worst thing you can do at this time is not be consistent and persistent, um.So yeah, so, so I hope if they did go all in and try to market time, I hope they learned a lesson from that, and don’t do that in the future for Bitcoin or any other asset class. Um, but if they didn’t, we know for a fact that not entering the market at the right time, not continuing with that pattern, is what hurts Alpha over the long run, that we know with 100% certainty.

14:00 spk_0

WhatWhat’s the catalyst? You you ticked off a couple catalysts and to your point, structurally things seem the same as they were a couple months ago. What’s that next, first of all, what would arrest this sell off? Like what would you need tosee?

14:14 spk_1

So for me I need to see changes in the market structure. Like, so what I mean by that literally is um a narrowing of depth and breadth of market participant. So markets, we talk about like people say oh this market’s really liquid.Um, I mean, you can come in and out with little friction. You don’t move the price when you come in and out, but there’s an, that’s market, that’s market, uh, depth, how deep is the market. There’s also market breadth, how many participants are in the market, and then even more importantly, how many different types of participants. You can’t, if everybody wants to sell their bike, you, I don’t care if it’s a billion people, you don’t have a functioning market cause everyone wants to sell their bike.If you have a mix of buyers and sellers, that’s a good start, but if everybody buying the bike wants it for exactly the same purchase, you don’t have good liquidity, cause maybe you selling your bike, it’s not the right color, it’s not the right timing, it doesn’t have the right speeds or gears on it.So you need breadth of market participation. That means you need institutional players, you need retail, high net worth, average people, you need ETF buyers, you need uh accredited purchasers, you need strict retail, you need people entering as speculation, you need people who are hedgers, you need all those different types. So that’s the one luxury we have at Coinbase is we have to see the breadth of that.because all the market participants come to us and that encourages me is I’m seeing more diversity and breadth of market participation than I saw 369, 12 months ago when that starts to break down when that starts to narrow, which is correlated to my prior comment about open interest when open interest decreases, that means people are leaving the market. They’re closing a position, they’re not opening up a new one.If you close your position and open up a new one, open interest stays level, OK? If you close your position and go home and say I’m, I’m done with this, it goes down. So as long as the breadth of participation is increasing, as long as open interest is staying stable or increasing, then I’m confident because I believe in the asset. If you don’t believe in the asset, you have a different view, but it’s hard to say on price direction, but it’s hard to say that the market structure is suffering when you have those metrics.

16:15 spk_0

What’sthe big what’s the big 2026 catalyst?

16:18 spk_1

So, I think Clarity Act.Being released, I think that’s great. I mean, I’m praying for Q4 of this year, maybe Q1 of next year, but I’ll leave that to the much smarter policy folks. Um, I think that’s probably the big unlock. Um, we have retail participation, the Solana ETF this quarter was the biggest ETF of the year. Um, so I’m comfortable from a demand side, um, eventually supply side will start to diminish, people will hedge out whatever it is they want to hedge out of their position. We saw a ton of the leverage being washed out October 10th.Um, so I’m in structurally I’m very, very comfortable.

16:56 spk_0

What you know, looking out, uh, you know, next year, you know, there’s still a lot of interesting characters in this industry, you know, we, I just talked to Michael Seller at our event, uh, he’s remains all in on Bitcoin. Like, what do you think about some of these, he’s, I guess he’s an OG, like these cast characters that still drive that, that crypto narrative.

17:16 spk_1

So you’ve gotta have evangelicals, right? You have to have people pushing out the relentlessly positive view, and especially if they’re as smart as Michael Sailor is, right? I think I think something I, I, I do believe we should listen to the skeptics, um, I think that’s important, uh.Uh, Nouriel Roubini is a good friend of mine. We don’t agree on this, but, but I, I, I don’t want to silence someone as brilliant as he is. I wanna hear what you have to say. The good news is I’m not hearing anything from the really smart skeptics I’ve been hearing for 5 to 10 years, so I’m confident that in my position, um.I think we have to, I think it was my friend Anthony Scaramucci that talked about this in politics. We have to give people an elegant on ramp.I don’t think crypto skepticism is a thing anymore. I think there’s crypto resentment, but that I mean is a lot of people who get paid a lot of money to maybe not always be right, but certainly not be colossally wrong or colossally wrong, but and they just were, and I’m not trying to be bitter or anything like that. I’m just trying to gloat. But the reality is if you can go back and if I gave you a time machine, Brian, and said you get to buy 2 and only 2 assets 10 years ago, which two assets would you say you’d buy?

18:22 spk_0

Uh, Nvidia and AMD,OK.You asked,

18:27 spk_1

but you would agree that Bitcoin would be in the middle, right? And, and if, and if you would, if you said I would never buy Bitcoin 10 years ago, you’re, you’re just lying, right? So, so there’s some folks who not just work, you don’t have to like every asset class. I, I have lots of friends who just don’t trade what I like to trade. That’s fine. But, but if you’ve been, if you’ve been on the record.Just a huge skeptical bear for a decade. That’s a little bit embarrassing at this point. So you have two choices. You can acknowledge, hey, I probably wasn’t right about this, or you can double, triple and quadruple down. And a lot of folks at a certain stage of their career where they’re better off quadrupling down cause they’ll just kind of ride it out and retire before they have to really deal with it. Um, so we have to not attack people who had aGood faith disagreement.With the underlying fundamentals of this asset class, um, and we have to give them an elegant on ramp to maybe not become proselytizing evangelicals pro again not everyone’s gonna love every asset. It’s OK, not every investor is gonna buy every asset, it’s OK. But the fact that what effectively is a mathematical formula has become so polarized.It is odd to me because I don’t see people getting into fights at Thanksgiving dinner over the Pythagorean theorem, but for some reason this notion of a cryptographically protected spot on a ledger inspires.You know, real housewife tables being overturned, um, uh, at the holidays.

19:53 spk_0

Lastly, 10 years from now, what role do you see Bitcoin playing in society?

19:59 spk_1

So I see, uh, give me indulge me two quick answers. So one, I’ll say Bitcoin and then crypto overall. So, so I think um Bitcoin, I personally see as a a predominantly store of value, and I see as a store of value that is accessible to everyone in the world for any amount of money. So I, I, I want two things before I, I, I leave this, this mortal coil. Um, I’d love to see, uh.Individuals who are struggling and and saving to get to that next level of economic security. Um, I’d like to see them check their phones cause everyone in the world has a smartphone, and I’d like to see them excited about their economic future because they hold a scarce, um.Immutable asset class, uh, along with other asset classes, and I’d like blockchain and crypto to provide a simple, clean access to US capital markets. So I, I want to see a world where an individual who has scraped together their 1st $5 of savings can check their phone every 3 to 6 months and see that their Bitcoin has kept a store of value.And also that using blockchain seamlessly and efficiently, they can invest in the miraculous economic engine that that is the US economy through either token sales or token as equity sales, um without paying exorbitant fees.And bet on the US economic engine, as well as Bitcoin, as the ultimate long-term hedge. The best pension funds I know view dollar cost averaging into the US economy as the best long-term inflation hedge. Add Bitcoin to that, it gets better. So that would be, that would be my dream.Uh,

21:38 spk_0

love thischat and it comes at such an important time. Uh, John D’Agostino, head of strategy at Coinbaseed Institutional, don’t be strange, let’s stay in touch. I love that. All right, that’s it for the latest episode of opening bid on Filter here at the NASDAQ in Times Square. We’ll talk to you soon.