BitGo’s CEO on its IPO Journey, Regulatory Tailwinds and Bridging Finance & Crypto

Thanks for having me, Eleanor.

Well, to me, it means freedom. I know most people don't think about what is good money, but it's why I got into the space to begin with. When you have good money, actually, you have more freedom. And I do remember really pretty consciously, I think about, I don't know, ten years ago feeling like the politics in America, everybody's got an opinion on self included, affect me less than they used to because I feel like there's a sound money that is behind me. And I hope that everybody has that feeling someday. It's liberating. It's fantastic. So look, I think we still have a lot more work to be done. I know some people are getting maybe skeptical that crypto, Bitcoin will fulfill its promise in terms of providing sound money, but I have no doubt that it will. I think all signs that are in the economy today still point to that.

Like there's two sides to this, right? I guess I haven't really thought about being a public company or a private company and affecting freedom. The reason that we are a public company is to be transparent. People can see our financials, they can see everything about the business, all the risks. And for all of the faults of the SEC process, it does give the benefit that people can measure us in a way that's familiar. And this is super important for the biggest institutions in America. Of course, they have a difficult time ascertaining what is the risk of working with certain private companies, and sometimes they've been burned by that. So that's why we did it. In terms of affecting like freedom or the mission, I think more the entire world is going through some learning exercise of what does it take to have a global type of money, because we've never had it before. Every type of money that we've used, I guess gold, maybe you could say is one, but it's heavy, hard to transport. Even that, we end up putting in vaults and kind of leaving it there and using proxies for it instead of the direct gold. But the global financial system has just never been figured out before. And instead, what happened is everybody had to put up walls around their nations to protect how money movement flows and how the laws of each land is protected. And everybody picks different laws, of course. And all of a sudden now we have value transfer that can go across borders instantly and regulated across the planet and have to figure out what does that mean for them, how are they going to live in a much more globally connected financial world?

Yeah. I mean, I'm in our New York office and fortunately we look down on the New York Stock Exchange.

Look, the bankers know how to make money and they will tell you the one variable that helps them make the most money is a bull market. So both for the issuer that's listing stock and also for themselves. They know that they make more money when the market is positive. So they strongly, strongly, strongly encourage you to do that. In our case actually, remember we were all set to go I think end of October last year. And then remember we had a little government shutdown. And so like everybody closed. So we got kicked out of October. And then November is Thanksgiving and then December is Christmas. And so we said, look we just want to get this thing done. And we went with January. You know the bankers are probably right. If your goal is to kind of optimize for how the fundraiser is going to go right out of the gate, probably waiting is a good idea. And everybody's got to make their own choice. For us, look, we really felt there's a lot of value if you're going to be a digital asset infrastructure provider. People need to know what's behind this thing. And we want it to be public so that we can have that public scrutiny. And then the market is what the market is. Sometimes it's going to be down. Sometimes it's going to be up. I think the new thing you learn is like, look, I am fully in on BitGo stock more than anybody. I'm not selling any. I feel the pain. I feel empathy for investors when stocks are not performing as they would like them to be. So I don't want to be glib about it in any way. So you have to watch that. But then also our business doesn't run on nice, neat quarterly intervals, right. What we're doing here is long term and it takes years. It's taken us a dozen to get to where we're at today, and it's going to take a dozen more. So you have to be thinking long term. The markets don't always think long term. That creates work to be done in terms of getting everybody kind of the same stage of understanding where the business is and what the plan is. And hopefully there's investors that are excited about that mission and willing to be on that for the long haul with us. And that's a new job. We didn't have it quite as much before as a private company.

Well, listing stocks, launching anything, any token, any stock equity that you're going to put out into a market, it's difficult. We've seen this on the ICO front a few years back. Ethereum pioneered those. And it's difficult to get like a fair launch with a broad distribution of users that have a vision towards something that isn't just like sell it as soon as you can to make a profit. So anytime you're taking something new into a market that hasn't been there, it's always challenging. And we've seen that on the ICO side. Of course, the IPO process is really the same thing. It's just in a regulated market instead of in the decentralized market. As for the DATs, it's a new business model in terms of how to create a financial type of product in a public structure. We've got ETFs competing with the DATs that can do more leverage. Of course, DATs can sometimes have brands like what you bring with Michael Saylor and Strategy or like Tom Lee and Metaplanet. So a lot of those guys are struggling to prove to their investors that they're going to work out. And I guess people are experimenting with this. I think the great thing is like it's innovation. This hasn't happened before. I mean, really, I think kudos to Michael Saylor the most, like he really thought of ways to use the public equity markets to build financial products that nobody had ever done before. And I think that's always commendable. And then of course, there's some copycats, some aren't going to have quite as good of an outcome. And we'll see. Obviously there's a lot of them kind of in the water now. I think most people are expecting there'll be some consolidation among those, just like there always is with every type of industry. When you have a sudden increase in the number of participants and some are working and some are not.

Well I'm forever bullish. I think probably as long as we got innovation happening and new things being done that haven't been done before, I think we should be excited. And the place where everybody should be looking right now, I mean, tokenized equity is just everywhere. And you don't have to ask like the third tier guys like me, you can ask the Larry Finks, you can ask Morgan Stanley, you can ask Citi, you can ask all of the majors and they are all participating. DTCC is tokenizing. I mean, it is everywhere. So I think this is incredibly exciting and it opens up all kinds of new things that we're going to be able to do that we haven't been able to do before. On the banking side, we're reinventing banking. I think the traditional bankers are still protesting a little bit, but we already have a new type of bank that requires way less regulation, is safer, gives you better interest, provides better payments, and does everything. It's called stablecoins. You do that through a regulated structure. It's absolutely better than a depository bank ever was. And it's thanks to new technology. So I think these are incredibly exciting things. Now as for the price, I think to some degree, people are wondering whether we're going to fulfill our promise, right? We said we're going to reduce the number of middlemen. We're going to cut the fees, we're going to bank the unbanked. We're going to democratize access. Some things we've made some progress on. But I think we as an industry have not made enough because we got an internal push. We think retail deserves all the privileges that institutions get. We talk a lot about the K shaped economy where the rich get richer etc. Why is it that here in crypto land, we have a world where retail is getting charged 100, 150 basis points, whereas institutions, they're not paying those prices, by the way, come to BitGo, try it out. So open to everybody. You will get institutional treatment on fees also with the model also with fiduciary protections. So we think all of these things that institutions demand should be available for retail. If we fulfill on that promise, I think that you will see a massive re-entry in digital assets in Bitcoin. I think we're just having to walk through some gyrations. One last thing I think is happening. AI is so sexy and so exciting that people are getting distracted by the latest sexy thing that's out there. And it's pretty sexy. I mean, you got to say, AI is changing every aspect of our lives and people are all looking at that. So look, the good news is there's a lot of building to be done. People say this all the time, but it really is true. You've got the up cycles and the down cycles in crypto. We've seen them over and over again. The folks that are really in, that are really interested, they keep building through these phases. The folks that aren't really in, what happens is they get really excited when everything's going up, and then it starts going down. And then the naysayers come in and influence them and like, you're right. And they go back to doing something else. And we've seen this with false starts in our industry over and over again. I remember Credit Suisse, which of course doesn't exist anymore. But they had a big crypto initiative, I want to say like 2017, 2018. I remember talking with that team. They're so excited. They're like, we're going to be the big bank that's going to take this innovation, the management is supportive of it. Yeah, I'll take this one bear market and that support weakens. And so then they end up disbanding. They all quit and they go somewhere else. And then it emerges at another company and we've seen it in pockets. Goldman was very excited at one point a few years back. Had to back off anyway. Overall, I think we should be super excited because we have regulatory tailwinds, which are really, really helpful. It's allowed all of those traditional financial companies that previously they didn't have the right air cover. I mean, call them whatever you want for whatever faults they have. They legitimately were really kind of stuck without having that regulatory air cover. And now we have it going into a less hot market. I think we get to separate out the builders from the people that are just chasing the next hot thing, which I think is actually good.

I'll answer your question in just a second since you went down the path. So I did a lot of work on HTTP/2, started I guess around 2010. And if you take a look at encrypted traffic that we had on the web from when SSL, which was the encryption layer that we created with HTTPS back in 1995 until 2009, I think about 30% of web traffic was encrypted. The rest of it was not. And building a new protocol, we built HTTP/2 and it requires SSL. And from the time HTTP/2 was launched till today is now like 99% encrypted, which I think is incredibly positive for everybody. And of course, there's always more to be done in security. It's not like the be all, end all, but it was a huge step and that took a lot of push. And I did a talk at the IETF, which is the Internet Engineering Task Force, the group that's been around since 1970 with internet protocols. I did a presentation there. I said, it's a matter of life and death. We need to encrypt. And it's interesting you think back about like, why did we create the encrypted web back in 1995? And that was done by a bunch of smart guys at Netscape. Not me. I don't deserve credit. But they wanted to make sure that e-commerce could come to the web. And the only way to do that was to encrypt your credit card. So it was all about e-commerce. But if you look at the history of what happened in terms of points where there were hacks on the HTTP, the SSL layer itself, it was nation states, it was Iran, it was China, and it was people that wanted to kill their dissidents. So it's not quite the same thing as freedom. But in terms of things that I'm proud of in my career, definitely like helping get everything encrypted, I think is probably maybe the biggest, biggest accomplishment. So I'm happy with that. Now back to your question you asked. I started to hear about it, I don't know, in 2012. I think maybe I heard about it before then, but honestly, I always dismissed it as like probably a scam or would never work. Probably a lot of people went through that phase where you hear about it a few times and what Bitcoin but no. 2012 I really started to look at it more deeply. Initially I tried to hack it. Of course I failed, but I learned some things along the way and it was just fascinating to see this decentralized system that could basically protect the double spend problems so that you could not have to trust anybody about your money. And then once that one clicks, then a whole bunch of other things start to look. So I had never been interested in finance, to be honest. I think it's crazy that Wall Street makes so much money. Wall Street doesn't create value. It's all the hard working people around America that make the value. They actually build products and they have to sell stuff. And then these financial guys make all the money like they're supposed to make a little piece of your money, not like a big piece of your money. And so, yeah, for me, down the rabbit hole was really kind of filling in a bunch of the gaps, stuff I had never studied about. How did we get to the monetary system that we have? How does it really work? And all the early questions back then were like, well, it's backed by nothing. And of course, I had a loose understanding of, yeah, we had gold standard at one point, but I had never spent time thinking about it because I didn't care about the financial services side. But then once you realize you can put money into the power of your machine and everybody can have that independently, it's so empowering. And then it gets excited. That's where the rabbit hole starts.

Yeah. Okay. I don't know if I use those words. If I did, maybe that's a little bit I wouldn't say it was modeled off of, I think the people that came to BitGo all the way from the very beginning, very much were people that had the ethos of Bitcoin, which is, how do you make something that's free? How do you make something that's free as a freedom, not free as a price. But I guess, all right. But some of that was free. How do you make it so that this open, how do you make it fair and democratized, very much into those general principles. And I think obviously the early Bitcoiners had this. I often like talking with Jesse Powell, and I don't talk to him that often, but he's such a clear principle thinker, kind of in this ethos. He's kind of the type of person that I think BitGo also attracted kind of back in those days.

Yeah, look, we pioneered multisig, which is still the gold standard of how you should protect against theft. We do this thing called a two out of three threshold model. And the reason we do that is it protects against both theft and loss. Not all blockchains support multisig natively. So Ethereum for instance, doesn't support it. So you have to use something else like MPC. In that case we didn't want to use the early variants of MPC because they're either two out of two or three out of three, and you may or may not be familiar with those, but basically those protect against theft in that there's no single point of failure, but they don't protect against loss in that if you lose any piece of it, you have to have a backup. And the backup has the same problem that you had to begin with, which is how do you make sure you don't have a single point of failure with the backup? So the two out of three model, which we use, I think we're the only company that stays true to using like protection against both theft and loss across every blockchain we support across everything. So we use most of the two out of three variants of the threshold signature for MPC on chains. Yeah, we recently saw Tron had an issue on one of the early variants of MPC. They were using a threshold in two out of two. It wasn't quite ready. MPC is much more complicated. You can see cryptographers far smarter than I am talking about. Look, these are really complicated protocols. And by the way, most people don't realize this, that cryptographic protocols are rarely mathematically proven to be correct. Instead, what happens is they get distributed and shared with other cryptographers. And after ten years, then people are like, okay, it seems like maybe this one's safe and literally like ten years is what it used to be. We've been moving faster than that in the digital asset space. But that does of course mean there's some risk. So I think we will continue to see new cryptographic algorithms. Obviously, the latest driver of this is fears about quantum computing. As you may know, the curves which we use in Bitcoin may be vulnerable if a quantum computer is built. So this is actually on the minds of a number of people that don't understand the technology, they're thinking, well, gee, am I going to go put in $50 million into this thing if a quantum computer is going to kill it in two years? It sounds like Google is going to do. My own opinion here is like first off, I think it's unlikely we see a quantum computer that can actually do any of this. But if we want to have the world understand that they can use digital assets, we have to take care of this fear. And it's a real fear. So I definitely heard this a lot. And this will drive new variants of how do we do signing on various blockchains. And that of course will lead to new protocols for how you do security. And I think all the experts are in agreement. Of course you need to limit single point of failure. This isn't some great novel thing that BitGo invented. It's a basic principle of how do you secure things, whether they're digital or something else. So I think we'll have new good algorithms that continue to deal with this. From Bitcoin's perspective, I think we've solved this particular part. We're also big believers in cold storage. A lot of other people take shortcuts and you can see, unfortunately, there's been a lot of mistakes that have happened even in the last 24 months where people didn't take as hard line. But obviously our clients, they pay us to make sure we take care of all these. We do 100% cold storage and then people sometimes are like, well, isn't that going to be slow? But we can get you out in less than an hour, seven days a week, 365 a year, right? And the reason for that is we build buffers, which is our risk. So your money stays in cold storage. We put some money into hot wallets, but we control that risk. If we ever lose that, that's us. Your money stays in cold storage all the time. Obviously, if you want to move 100 million bucks, it's going to be a little bit slower. But even going through the full cold storage process, it's not that long, a few hours.

I would say 100% of our business is this bridge between crypto and regulated. We do technically still have a self custody wallet layer. You can use that. It's not really a regulated product because it's self custody. Some clients use that in concert with our custody products and get one interface. You can see your self custody wallets, custody wallets, it's all there together. You can move them very, very easily between each other. But when it comes to business, custody is just kind of a requirement. It comes in as a requirement in a couple of different ways. One is large funds are required by law to use a qualified custodian. Okay. So there's that part. But then even if that weren't required, if you're running a business and you've got a bank account, you've got multiple people from the company on the bank account, you've got policies the CFO can set, who can spend how much. You've got auditors that come in on that. So there's a whole business of banking that's not crypto specific, but any business needs it. So it's not like the regulator is coming in and saying, oh, you have to have this. And otherwise people will just use cash. No, people want this custody. It gives them a level of safety. It allows them to have business continuity. People can come and go from the company. And if you don't lose your money, this idea that you're going to give it to the IT guy and he's going to put on a Ledger device and stick in the drawer. I mean, that obviously doesn't work in context. So this is where we focus, is making sure that our clients know that they've got a full service of banking. And maybe things that surprise people is like, if you think about crypto, you might be thinking like, oh, it's Bitcoin and it's Ethereum and all that. But of course it's those but also it's the stablecoins and also it's dollars. So we take dollars for people. We can help you convert to stablecoins. Oh you've got USDT you want to convert that to USD one? We can do that for you. Oh you don't want to touch stablecoins. You just want to have dollars. You can receive stablecoins from your clients. We convert it to dollars. You get a wire. Oh, you want to send out a stablecoin? Send us the dollars. We'll send you that. So this is the business is really helping the traditional world interface into digital. And of course, it has to be regulated. And of course it has to be custodial.