>> Announcer: Live from Nassau in the Bahamas, it's theCUBE! Covering Polycon 18. Brought to you by Polymath. >> Hello, and welcome back, we're live here in the Bahamas for Polycon 18. This is a cryptocurrency tokenization event. It's really about the future of work, future of infrastructure, and all of the top entrepreneurs and investors are here, I'm John Furrier, Dave Vellante, this is CUBE coverage, our next guest is Mike Bucella who's a partner at BlockTower. Progressive, a hedge fund, doing amazing work. Really putting the stake in the ground. Making investments, and taking a new model of finance, taking some old school techniques, applying to the new school. Mike, welcome, thanks for coming on theCUBE. >> Thank you for having me. >> We were just talking before we came on that you're from Goldman, your team has some expertise, what is the, what's the philosophy of the landscape now? As the young guns look at this landscape, it reminds me that the old days, the PC generation, everyone was poo-pooing the PC generation. Oh, they're just toys, you'd hear that from DAC guys. This shit's working, >> Yeah. >> I mean, isn't it? >> Yeah, so it's interesting. You know, when I first delved into cryptocurrencies I would say probably 90 plus percent of market participants didn't exist that do today. And when you go from old-world finance to new-world, you kind of get this little skeptical look from people. And that was last year, and now simply, six months later, you know, its obviously taken a massive leap forward both from adoption from the broad investment community, institutions, some of the large old-world players in the broker dealer community who are all kind of dipping their toes in this space as well. So, it's certainly grown quite a bit in the last year. >> I mean, there's two reactions to crypto, and one is, in token economics, it's, that's the future, I'm all in, I'm long on the game, and then the other half is, man there's a bunch of scams out there. I mean, I get two reactions from really smart people. The risk-conservative ones, or risk-management oriented it's all about scams in there, it's going to implode, to go take that hill, I'm long on bitcoin and blockchaining. >> Yeah, I mean, as with any new technology and new industry there are going to be bad actors in the space, but you kind of try and, try and bifurcate the community and understand who is actually driving the technology forward, right? Because, you know, I very much appreciate what the technology represents, I am part idealist but I am also part capitalist and realist where I understand the reality of the situation where I am right now. There are, there is a lot of inflated valuation on the market, there are a lot of players in the space who shouldn't necessarily be operating in this particular area, but see the allure of capital markets. But I think, you know, as the investment management area grows, you're going to continue to see a bit more, I guess diligence on the behalf of the investors looking at particular projects and understanding the risks associated with those. >> I was talking with Dave last night, I heard your, some of your hallway conversation when we were bantering last night at the VideoCoin event, and throughout the evening. You have a philosophy, and most successful investors have a risk-management view. Can you share your thoughts on that? Because I think, there's a way to do it, and there's a way to be a pro. >> Yeah. >> You've got your pros. What's the pro tip for you guys? As you talk to investors and say, "Hey young people coming up or seasoned investors, "here's the pro-tip on risk." >> Sure, and as we sit in a conference like this, an amazing regulated token conference, registered token conference, and anchor capital, and you know, any other conference you sit in, if you take a step back, and kind of put yourself in the broad community again, you have to understand that this market is not without its risks. You have to understand that investing in cryptocurrencies takes on an enormous amount of volatility and risk that you need to solve for. Right? So, as you're investing across your entire portfolio, you have to think of crypto as this sleeve as an allocation of your risk capital. And within that, it's going to be one of the most volatile, most cyclical asset classes you're going to invest in. So, you need to, I guess, you want to gingerly approach it, and you want to account for that risk in some way. And as, as fund managers, you should also be accounting for that risk as well. We can talk a bit more about, you know, looking at ICOs versus looking at the broad publicly-listed cryptocurrencies but there are very different risks associated with each one of those underlying investments. >> What's the risk that scares you the most? >> That's a good question. I continuously ask myself, what could crater this market? What could completely degrade network value, and cause the downside, which is absolute zero in this space. I had said for a long time, globally-regulated coordination of market participants, they can't regulate the tokens, or the technology, they can regulate participants, which could degrade valid network. I would have to say, that continues to be the biggest risk although, I think we're seeing, with Clayton and Giancarlo's recent testimony that, you know, the U.S. is looking to be helpful. They want, they're looking to stop a lot of the bad actors in this space, but they're looking to be helpful for the broader community. >> There was a competitive imperative. I mean, I would think. But there's got to be, presumably, there's an investment premise, that's not just, you know, short-term, I'm going to buy low sell high. What is that fundamental investment premise which presumably, you're optimistic about? >> I think you got to approach it from many different angles. Right? When you think about investing in cryptocurrencies more broadly, you should think about it in different types of exposures. Passive exposure, right? So where you have, you know, a small piece of your portfolio with the highest expected return in tokens that you think will generate the most value over time. Store of value, privacy coins, base-level protocols, like, you know, obviously a big Canadian network here, Ethereum, was created out of a group in Toronto. Then you think about the next level, which is more B.C. oriented. So, you know, folks who are investing in early-stage products. The next Ethereum, the next Bitcoin. Something that will displace the leaders, the incumbents of the current market. You can think about more risk-managed approach. Folks who are actively managing this space. To both take advantage of an inefficient mason market, which the likes of which many of us have never seen in a long time, from the traditional asset world. And then you think about private investments and things like exchanges, mining operations, the entire ecosystem. There's a lot of private equity opportunity as well. So you kind of want to diversify your exposures amongst those levels of the ecosystem. >> So those inefficient markets are the ones that are most likely to get disrupted, right? Everybody talks about, you know, banking, >> Yep. >> As, as one of the potential areas where blockchain, I'm just going to drive through, but generally speaking the banking industry hasn't been radically disrupted, as we all talk about it. >> Yeah. >> People are kind of expecting it. What are the inefficiencies you see, and what makes banking sort of right for disruption, and why hasn't it been more disruptive? Is it 'cause of the regulations, the risks associated with that? >> Sure, so, you know, banks do have large working groups looking at blockchain and how it can be implanted into their business. I think as large banks do, they're taking their time and doing a lot of diligence before implementing anything. That's not to say they haven't been investing in the space. You can look at, you know, Goldman Sachs, invested in Circle in its early days. Circle's one of the largest OTC dealers in cryptocurrencies. Circle recently purchased Poloniex, one of the larger exchanges in the U.S. And so, they have their toehold position in this space, and they'll be gathering information and data to understand exactly how it could potentially disrupt their existing businesses, and how they can evolve and become more, I guess, more disruptive in the ecosystem as well. >> I want to get your reaction to some feedback we've been hearing. And we've been commenting on it, on theCUBE here, and on the shows, you see a pattern emerging in ICOs. Certainly, we have enough data to see kind of what people have been doing. Certainly, the FCC has been helping. The FCC has been with the utility, kind of poo-pooing the utility. >> Sure. >> This shift, to security-ized tokens is a great thing. >> Yep. >> Makes the paperwork go faster, it's all about board, these vehicles that people are used to. But now you start to see companies are basically startups doing a big land grab, raising obscene amounts of capitals by startup standards, I mean, you go to venture capital, you raise a series A, and you don't have a product, you get five. >> Yeah. >> Maybe 10 if you got a rockstar team. >> Sure. >> Here, you're raising 50 to 100 million with no product. >> Mhm. >> So you got startups. >> Mhm. >> And then you got the other end of the spectrum, complete pivots. I mean, we're all running out of business, throw the hail Mary! Let's raise 50 million! And then you got the growing companies that are right for token economics. >> Yes. >> So, to me, everyone is focusing on those growth areas versus the pivots and the startups, because those got to be nurtured, board meetings, have to make decisions. >> Right. >> That's like a nightmare! >> Yep. >> I mean, not a nightmare, it's hard, it's hard as hell. >> Yep. >> So what's your thought, your reactions? Do you agree with that? Any commentary and reaction to that? >> I think cryptocurrencies, or digital assets, represent an opportunity for the very early stage projects, who have very smart technology teams, right? And guys just want to focus on the code and development but aren't the types of folks who can go out and raise capital and have the dozen, two dozen, three dozen VC meetings where they have board presentations, and they have to, you know, present their, the full-scope of what their project is going to be. These are guys who, who really are, their time is much better well-spent coding. >> Coding! >> And developing their project. And, I think cryptocurrencies, and what we're seeing here at the conference and the ecosystem are surrounding it helps smart individuals with good projects tap into the funding markets, right? >> So you're saying community is the new benchmark for operation, operating the startup, because that makes sense. Why spend my time going through all these hurdles and hoops, when I can just go to the community for feedback? >> Exactly. >> And governance. >> Right. >> Okay. >> Mike, can you talk about, just from the company's perspective, you always hear, well, that's a bad route because the FCC's going to regulate that, or it falls under some umbrella of regulation, so here's how to get around that, but. At the end of the day, I mean, why not? Why not absorb those, you know, adhere to those regulations? I mean, is it just the cost of doing business? Pay 100 grand a year for an audit? What are you seeing as the logical alternatives for companies? >> Sure. So there is a very lengthy process to doing a traditional listing in an IPO. Or, you know, for some folks, it's a matter of selling equity on their cap table, >> Dave: Right. >> Versus selling a token that's unassociated with any of the capital structure. >> Sure. >> You know, I think, I think regulated, or regulated tokens, right? So, what the future of this business will be are necessary, because-- >> Dave: Sure, it's inevitable, right? >> It's inevitable, right, and I think, for this market to achieve the scale that it needs to, you need to have a framework in place for a large institutional participation. And I don't think you're going to be able to get there without some sort of regulatory framework. >> You need guardrails, but you can't over, overtax the institutional investors. >> Yeah. >> You got to let, I mean the FCC is doing that. They're not, they're not clamping down, they're just kind of sending signals. >> Right, right. And the FCC is doing it, I think, in the right way. >> Yeah. >> Where they're saying, listen, we're going to, we're going to do our diligence in the space. We're going to understand exactly what the token economics are, why you decided to list the utility token, and why you went through an ICO process versus an airdrop. There- >> Airdrops are interesting. >> Right. >> Talk about that, I mean how does that view? >> Well, I mean now, obviously, that's come into play quite a bit, and people are debating whether or not they want to be doing the traditional ICO process or the airdrop. The airdrop, obviously there's a lot less economics associated with that, in terms of the capital raise. But, you know, I would say, again, I think what the regulatory indicis are trying to focus on is, for those, like we just said-- >> What to look at. >> Why exactly have you gone through a token process versus going the traditional route? >> That's interesting. So, I mean, I mentioned tax. Tax consequences is a big thing that's slowing things down a bit, and I won't say it's coming to a screeching halt, but, it's causing people to take pause, because, you know, I'm slinging APIs around, I got Bitcoin over here, I got Integrative Wallet selling Litecoin, and cross over the top is another currency, and all taxable. >> Yep. >> So like, you guys have done hedge funds before as pros. Coming into this new market, how cautious are you of that, and is the industry doing its thing? Are people going to go out of business because they misfired on their allocations? Or, I mean, there's a lot of nuances of being a fund. >> Yeah, I think, I think the biggest mistake you can make as a fund manager in this space, is not taking the most conservative approach to regulatory issues, taxation issues, and operational issues, like security. I think you want to take a hard line, you want to have both your outsourced service providers, and you also want to be in touch with some of the largest accounting firms in the world who have large working groups in this space, right? The big four accounting firms are obviously doing a ton of work here. And you want to constantly take in new information, and be prepared for what the next iteration of tax policy could be. >> Frame what you look for in an investment, and what you say, you don't walk, you run from that investment. What are the parameters? >> So I mean, I'd say broadly speaking, I don't want to touch on BlockTower-specific, but broadly speaking, you know, there's many different ways you can attack the markets, right? There's, you know I said, you can kind of squeeze the orange in eight different ways. And like I said earlier about the different types of underlying exposures, right? Passive, PC, active. Those are the ways you think about it from an investor's standpoint. As a fund manager, it's much different, right? You are managing assets on behalf of an individual, and you are their exposure to the market. Hopefully, you are one of their exposures to the market, as I think any responsible investor in this space should think about it in a sort of cross-list of risk. >> Come March 16th, Bitcoin will go up! That's the prediction. Pay taxes, and then back on the saddle. (mumbling) Mike, BlockTower Capital, congratulations, great firm. Really put the stake in the ground, you're seeing institutional money coming in, that is a great sign for a healthy ecosystem. A lot more work to do, thanks for sharing your insights here in theCUBE. Be back with more live coverage after this short break. I'm John Furrier, Dave Vellante, thanks for watching theCUBE. (electronic music)