Key takeaways
- Stablecoins provide a safer and more efficient alternative to traditional banking.
- The future of finance will involve the tokenization of all assets, including equities and bonds.
- BitGo’s operational controls and regulatory frameworks are crucial for building market structure in crypto.
- BitGo is stronger than most competitors due to its readiness and strategic planning.
- Going public benefits BitGo by strengthening the business and enhancing transparency.
- The US capital markets will transition to digital, bringing inherent risks.
- Custody risk in crypto is unique due to the nature of bearer instruments.
- Exchanges should not extend counterparty credit risk.
- Clients prefer cold storage for security but need liquidity for trading.
- The emergence of a new asset class necessitates a reevaluation of market structure.
- Stablecoins offer a safer alternative to traditional banks for deposits.
- The regulatory environment for crypto will remain stable for the next three years.
Guest intro
Mike Belshe is the Co-Founder and CEO of BitGo, the digital asset infrastructure company providing custody, wallets, and security solutions. He previously served as one of the first engineers on Google Chrome and created the SPDY protocol, which became the foundation for HTTP/2.0.
The advantages of stablecoins over traditional banking
- Stablecoins offer a safer and more efficient alternative to traditional banking. “Stable coins are from a deposit or retail deposit like better banks than you’ve ever had they’re very safe one to one back you can have an auditor come in you audit it twice twice a month.” – Mike Belshe
- The fears of banks losing deposits to stablecoins are unfounded and historically baseless. “We know it won’t because this is not the first time this has happened in history… there was no run on the bank, it’s all gonna be just fine.” – Mike Belshe
- Banks are attempting to block competition from stablecoins through regulatory means instead of innovating. “Rather than try to compete… their first option is like well if we could just block this regulatory wise we don’t have to compete.” – Mike Belshe
- Stablecoins should be viewed similarly to ETFs in terms of operational and regulatory costs. “I think a stablecoin is actually a very similar type of activity… you’ve got again a little bit of operational you got some regulatory some audits and then you’re managing one to one reserve very similar types of products.” – Mike Belshe
- The fees for stablecoin issuers should be significantly lower than they currently are. “We should be thinking about how do we get stablecoins to the point where the issuer is keeping somewhere in the neighborhood of 25 oh maybe 50 basis points… it shouldn’t be like this 300 400 basis points which is kept today.” – Mike Belshe
- There should be no loophole for anyone in the stablecoin interest market. “I believe there should be no loophole for anybody there should also be no blocking from genius it’s really genius that needs to be changed to allow interest and everybody should be able to do it and compete in the open markets.” – Mike Belshe
- The current regulatory environment creates an unfair advantage for one company regarding stablecoin interest. “If we’re gonna have a loophole like everybody should have a loophole in which case it’s not a loophole or we should have a loophole that nobody has access to it should be one or the other.” – Mike Belshe
- Fractional reserve banking inherently carries risks that necessitate insurance, while 100% reserve banks do not require such insurance. “if you’re not taking that risk you don’t need the insurance because you actually have the money… an insured bank that’s a fractional reserve bank has got a bunch of risks in it and needs insurance.” – Mike Belshe
BitGo’s strategic positioning and market structure
- BitGo’s operational controls and regulatory frameworks are essential for building market structure in crypto. “it’s the operational controls and the stock audits and how do you have insurance behind it and how do you do cold storage behind that what’s your regulatory framework what’s your regulatory framework in each of the jurisdictions around the planet how do you build market structure which bitgo does to make trading capable straight from cold custody” – Mike Belshe
- BitGo is stronger than most of its competitors due to its readiness and strategic planning. “without throwing too many superlatives out there i’d like to think bitgo is is frankly a bit stronger than than than most of our our competitors and so we were just ready earlier” – Mike Belshe
- Going public is beneficial for BitGo as it strengthens the business and enhances transparency. “we like it because we think it makes our business stronger and it’s as simple as that” – Mike Belshe
- Bitgo is fundamentally different from retail-focused crypto companies. “Bitgo is an infrastructure provider mostly known for storage and custody but actually we’ve been trying to help build you know market structure and these days we’re a full fledged financial services company for digital assets.” – Mike Belshe
- The industry would greatly benefit from regulatory clarity, even if it has imperfections. “We think like we we as an industry would greatly immensely benefit from having clarity done even if it’s got imperfections.” – Mike Belshe
- The clarity act fails to address fundamental aspects of market structure. “Nobody’s talking about it… what you described is actually the more fundamentally important part of market structure that is being actually discussed in the clarity act.” – Mike Belshe
- The emergence of a new asset class necessitates a reevaluation of market structure. “We’re at this unique moment in time where we have a new asset class coming into play… does it need the same type of market structure we’ve had does it need something different.” – Mike Belshe
- Financial institutions will increasingly seek out robust infrastructure to support their digital asset offerings. “every financial institution in the planet that’s behind a digital asset… they’re gonna be looking like where do they get the best infrastructure” – Mike Belshe
The transition of traditional capital markets to digital assets
- The US has the largest capital markets in the world, which will transition to digital, bringing inherent risks. “first off the us has the largest capital markets in the world they’ve lasted for over a hundred years… as the world goes digital those markets will become digital and as such any risk that are inherent to digital will fall into the traditional capital markets” – Mike Belshe
- The New York Stock Exchange’s move towards digitization indicates a significant shift in capital markets. “New York Stock Exchange recently announced they want to make everything digital… if I’m from the traditional space and I’m looking at clarity… I’m gonna go digitize everything and then I’m gonna go bring a one stop shop together as well my business can tremendously grow if I do that.” – Mike Belshe
- By 2026, the entire capital markets will likely be tokenized. “Paul Atkins who is the SEC chairman saying that… the entire capital markets will be basically tokenized by the 2026.” – Mike Belshe
- The US must preserve its status as the leader in capital markets by identifying and mitigating risks. “I think we do need to think very seriously like what are the risks we’re protecting in our capital markets… identify those risks super easy to figure out how you’re gonna solve those problems.” – Mike Belshe
- BitGo operates as a 100% reserve bank and is positioned as a financial services institution rather than just a custodian. “look we’re actually a national bank at this point we are a 100% reserve bank… we’re a financial service institution” – Mike Belshe
- Legacy custodians may either build their own infrastructure or partner with firms like BitGo for efficiency. “are the bny mellon and the state streets and the legacy custodians going to attempt to build out this infrastructure themselves or would they partner with a bitgo” – Mike Belshe
- Bitgo’s cold storage solution is essential for securing billions of dollars in digital assets. “What we have is a 100% cold storage… when you’re securing billions of dollars you just have to keep it offline otherwise you are vulnerable to these hackers twenty four seven.” – Mike Belshe
- Traditional firms are currently analyzing how to enter the digital asset markets. “All of the traditional firms are making the analysis right now of how do they get into the markets.” – Mike Belshe
Regulatory challenges and the future of crypto
- The regulatory environment for crypto will remain stable for the next three years despite legislative uncertainties. “it feels like even if clarity doesn’t pass…we still have three solid years for precedent from the regulators” – Mike Belshe
- Excessive regulation can hinder innovation and lead to ineffective products in the crypto industry. “if you lay too much regulation on top of it you end up with a industry that can’t move and then you end up with products that don’t really work very well” – Mike Belshe
- Overregulation could stifle financial innovation for consumers. “if we overburden with regulation we will stifle better finance for Americans and if we and if we leave it too light look people have to take a little bit more responsibility for what investments they make” – Mike Belshe
- The regulatory environment for crypto has improved, but there is still work to be done. “I think there is work to be done in terms of codifying in law.” – Mike Belshe
- The current banking system may not have capable leaders who can effectively manage finances in a changing economic environment. “it’s not clear to me at all that the inheritors of these 100 year old organizations… are necessarily great stewards of your finance your your money just because they’ve been doing it a long time.” – Mike Belshe
- Banks may lack innovative investment strategies, relying instead on traditional, low-yield options like ten-year T-bills. “it’s rather shocking that they didn’t have any other better ideas and then what’s really shocking is that it didn’t occur to them like we’re in a zero interest rate environment what happens if the interest rates start going up.” – Mike Belshe
- Bitcoin remains a unique asset due to its scarcity. “we are gonna realize that that scarcity of money which only bitcoin provides at that level actually” – Mike Belshe
- Bitcoin will continue to grow despite ongoing challenges. “I think bitcoin continues to grow… it takes hard work… the bitcoin ecosystem teams need to continue to work to make sure that people can fully trust bitcoin.” – Mike Belshe
The resilience of Bitcoin and human ingenuity
- The resilience of humans will help strengthen Bitcoin over time. “Good news we as humans are pretty pretty clever and resilient over time and we actually do usually do this in spite of our flaws.” – Mike Belshe
- Clients prefer cold storage for security but need liquidity for trading. “Our clients love the cold storage they’re storing billions of dollars of assets with us they don’t want it online… but when they wanted to trade they’d have to take it out of that cold storage and go put it on some rickety exchange somewhere they don’t wanna do that.” – Mike Belshe
- Market structure allows for both security and liquidity in trading. “Market structure is what gives you both… it allows you to have the security and safety of where it is that you’re banking or storing it also allows you to have liquidity get the best price anywhere.” – Mike Belshe
- The current market structure in crypto does not ensure best execution for traders. “When you go to crypto you prefund some exchange… those exchanges they don’t have a duty of bestex they just get you the best price on their exchange but we all know that like the best prices can be anywhere.” – Mike Belshe
- Exchanges should not be allowed to extend counterparty credit risk. “Exchanges should not be allowed to extend counterparty credit risk and you know in the crypto world exchanges have been a one stop shop they take the custody risk they take the counterparty credit risk and they wanna say oh but we can do it better.” – Mike Belshe
- Custody risk in crypto is unique because it involves holding bearer instruments that, if lost, cannot be recovered. “the hardest things to custody ever right they are bearer instruments and if you lose them they’re gone unlike you know equities or anything else where you can probably rewrite a database and get back up in a couple of days” – Mike Belshe
- The future of finance will see the tokenization of all assets, including equities and bonds. “Larry Fink… says everything’s gonna be tokenized so every equity every bond every fund it’s all gonna be tokenized.” – Mike Belshe
- BitGo’s operational controls and regulatory frameworks are essential for building market structure in crypto. “it’s the operational controls and the stock audits and how do you have insurance behind it and how do you do cold storage behind that what’s your regulatory framework what’s your regulatory framework in each of the jurisdictions around the planet how do you build market structure which bitgo does to make trading capable straight from cold custody” – Mike Belshe
