Scottish Mortgage interviews Blockchain.com’s CEO

Well, that's a big question. I think that the question that I like to think about and remind myself of is what's the problem that I'm interested in solving with crypto, because there's a lot of different problems people are trying to solve with crypto. Crypto at this point and digital assets are really a set of technologies, and you can use technologies to solve any manner of problem. And so the question that I'd reframe is like, what problem am I interested in? What problem am I working on? And that one is really simple: it's economic freedom and choice. What got me into crypto early on and why I'm still really passionate about it is this idea that you could use these technologies to build systems that gave people more economic freedom and more economic choice in their daily lives. And what do I mean by that? It's really two simple things. The first is the ability to transact with anyone anywhere in the world. So just like WhatsApp gave us the ability to message someone anywhere in the world basically for free as long as we had data, crypto allows us to transact with anyone anywhere in the world basically for free. It doesn't matter if I'm in Kenya and you're in South Korea or we're sitting right next to each other, we can economically interact. And I think that that's good for humans and it's good for the world. The second thing is economic choice. And when I think about economic choice, I think about the kind of assets that people own. So we're sitting in Scotland today, which is part of the UK. I'm American. We're both very privileged that we have access to the dollar and the pound, which are relatively stable currencies even though we can talk about inflation over the last 10 years, but they're relatively stable currencies and stable financial systems. I spent a lot of my younger life in places with much less stable systems, like Uganda, where most banks go bankrupt in a 15-year period, where the Ugandan shilling basically inflates away everyone's net worth. And the reality is most of the world's people live in countries like that, not in countries with stable finances. And so to me, one of the big things about crypto that was interesting and one of the problems I wanted to solve was giving everyone everywhere in the world the ability to have the same kind of financial access and financial choices that so many of us in the West were blessed to be born with.

Sure. The first business we have, and the one that we're most known for, is our consumer business. And that's really sort of you can think of your bank account for crypto, where we offer you a custodial and a non-custodial Web3 wallet. So between those two, you can do almost anything you want as a person in the crypto market. We pair that with a brokerage, and that retail brokerage lets you take your pounds and convert them into any crypto you want, or your dollars or your Nigerian currency or so on and so forth, about 100 FX pairs around the world. Our next business is an institutional prime brokerage, and that's really about OTC trading. So whether you want to trade spot, you want to trade derivative products, we offer custody, and we also offer staking. And so it's really a full range of services that an institution might need. The third thing we do is liquidity provision. Liquidity provision can be thought of as helping new tokens and projects launch. It can also be helping other crypto apps or crypto companies offer trading products and services. And then the last thing that we do is asset management. And just like any other place, including Baillie Gifford, we take clients' funds and we manage them according to a specific mandate.

Yeah, you know, one of the things of doing this for a long time, I've been a decade in a CEO now and longer than that working on the project, is that you make a lot of predictions which seemed very crazy at the time, and some of them become more real as time goes on. I think 2030 is still a little ways out, thank goodness. One of the other big bold predictions I made was in 2014. I said that within 10 years Bitcoin would reach $125,000 a coin, which I'm running out of time to be right. I've got maybe one or two weeks left for Bitcoin to hit $125k. But that was a big prediction that I made. In 2021, it's like the internet GDP, right? And that was shamelessly borrowed from a McKinsey report. Crypto being at the center of it probably a bit less consensus at the time. Now what's happened since then has been really interesting. Crypto went through its sort of near-death experience, which we were both part of, and it was an interesting time, a lot of lessons learned. But it's come back, and it's come back in a way that's stronger, more resilient, a more orderly market, and frankly a more useful set of products. And so my confidence that the internet will be the world's largest GDP has unchanged, and I'm even more confident that crypto will be at the center of that as a financial system. Our company, what we do, is really simple and has been simple since 2011. We try to build products and tools that make it easy for people to be part of the crypto financial system. Now the reality of that mission is that it's gotten a lot more complicated over the last 10 years. So when we first started out, we just built a search engine to display Bitcoin transactions. Then we built a wallet for people to help manage and store their Bitcoin. Then we built a trading brokerage. Then we continued to today. We really do look like a Morgan Stanley for crypto in the sense that we have a consumer brokerage, we have an institutional brokerage, we have a custody business, we have an asset management business, and we also have a systematic business. And so we're really in the business of making it possible for people to be part of the crypto ecosystem. And that's a challenge and a privilege that we take really seriously.

So this year was the first year that we've seen institutional demand really drive the market. We actually haven't seen a widespread resurgence in consumer trading activity. We've seen a return of activity, but so far that activity level has not surpassed prior levels, whereas in the institutional space it's dramatically surpassed prior levels. I do think the Bitcoin ETF is a funny example though, mostly because my theory on the Bitcoin ETF being so successful at launch is actually that it was launched way later than it should have been. The success of that is just evidence that there was sort of pent-up demand that had been ignored for too long. Why had it been ignored for too long? Frankly, because no one could get an ETF approved. We had a four-year period where the administration in DC would not approve new crypto products. And so I think that's a really sad thing. A lot of investors missed out on a lot of gains, missed out on a lot of choices that they could have made, because we essentially had an administration in DC stonewalling the crypto industry. And so yes, there's a lot of demand for Bitcoin, yes the ETF product is really cool, but I think the very rapid success of it is mostly just evidence that it should have been approved a lot earlier.

I think we don't know. But if I had to guess, I would say that actually consumer continues to drive it more than institutions, because ultimately at the end of the day, institutions are just collectives of consumers. All of the money eventually comes back to people somewhere, somehow. However long and winding that pathway back to the people is, it always comes back to people.

Yeah, and I'd expand the statement. It's not even that many of them failed, it's most of them. Statistically, it's like seven out of ten. And I think that we have managed to survive three of these sort of crypto winters or downturns really for a few reasons. The first is that we're very committed to the long term, and so we don't make a lot of short-term decisions. I think that there are decisions that we get wrong and decisions we learn from, and things that we have to change cycle to cycle, but we've never been in the business of short-term gains. A lot of the companies that you see go bankrupt are really doing short-term things, trying to get rich quickly, trying to grow too fast. We are very, very long-term oriented, and I think that's helped us. And frankly, it's something that we share a lot in common with Baillie Gifford. I think the second thing is that we were very fortunate to have great people around us in terms of the board, really experienced folks who know a lot about risk management. So we were probably a lot less exposed than a lot of our competitors because of that. The third thing is that we have seen this before. And so I feel like a lot of times the reaction from the folks that failed was far too slow. They're too slow to cut cost, they're too slow to cut risk. And a lot of them could have survived if they had moved much faster. We had the benefit of having lived through these before, and so we knew as soon as things looked darker than expected that we needed to be incredibly aggressive about responding to it. And in terms of how we came back thriving and stronger than before, there were a couple of things that we focused on. The first was eliminating any businesses that didn't make sense from a risk-to-reward trade-off. The second was really focusing on scaling our systems for operational leverage, so that when activity resumed we wouldn't have to just scale expenses with activity. Activity could scale and expenses would remain somewhat fixed. And then the third thing is, with a lot less competition, it's easier to succeed in a market. Whether that's from a client onboarding perspective or from a gross margin on different activities, a market with two-thirds to three-quarters of the competition no longer there is just going to be a lot more interesting.

There's a saying that trust is easily lost but built over a long period of time. You can quickly lose trust but you can't quickly build it. And that's never been more true than in the crypto space. One of the things that I'm most proud of in my 10-plus years as CEO is that we've never broken a trade, we've never not honored a withdrawal request. We've always been there, we've always been on time, and we've always done right by our customers. That's the kind of track record that builds trust with your customers. In fact, in the depths of the crisis, we had a lot of customers that were emailing us being like, 'Hey, do you have all of our money? What happens if we withdraw it?' And we actually sent a customer-wide email and said, 'Look, you can trust us with your money, but you don't need to. There's a Web3 side of the wallet. You click this one button and all your money goes from our custody to your custody. No more trusting us.' And I really thought when we did that that we'd get a mass exodus of funds. And we didn't. Actually, about 10% of customers hit that button. We got even more money deposited back into the platform as people saw that they could withdraw all the money trivially. And so to come back to your question on a more pointed answer, trust is just built slowly by doing the right thing day after day, year after year. One of the things that I think excites me most about being in crypto over the next 10 years is that I feel like we've kind of proven to the market that we can be trusted. And I think that's probably one of the most valuable assets you can own at this point.

I don't know that there are a lot of threats left. I think it's reached a large enough size and a wide enough distribution that it would be very hard to shut down, particularly now that the big traditional companies are involved. I think from a technical perspective, we're unlikely to find out anything that we hadn't found out by now. I do think that the thing that will slow adoption down is access. What I mean by access is localized software has to be built to enable different markets from a fiat banking perspective. Now that there are fewer companies to do it, I think maybe that process slows down a little, but I think you're just talking about a delta of a couple of years. I think a lot of other cryptos face real threats, but in the case of Bitcoin, it's really reached a critical mass where we're here to stay on the Bitcoin front.

I think a very small country could. If I was running a small country today and I could issue debt and buy Bitcoin, I'd probably issue as much debt as I could and buy Bitcoin. But that also only works out if the political leadership is stable, because the magic of Bitcoin and crypto generally is that you need to hold on to a position for five or six years to make money. So in most democracies, there's not enough time to hold on to that position to make money. And my fear would be that your political opponent would sell the position at a loss just to make you look bad.

I think it's huge. It has really been the thing holding the crypto market back for the last four years, the resistance from the US. Now we've gone from not just an absence of resistance but a full-throated support for Bitcoin and the crypto industry. I don't think you can overestimate how important that is. It really is a whole new world, a whole new market. With the Trump administration opening up the market, they're also going to get out a regulatory framework that works. My guess is a national charter. It's probably the most significant thing to happen in the crypto market in the last six or seven years.