This is a recast of a recent interview I guest hosted on Real Vision featuring Darius Sit, co-founder and managing partner of QCP Capital.
Darius Sit speaks about his outlook for the DeFi sector. Being Singapore-based, Sit is at the heart of the Asian financial markets and digital asset community. After a recent meeting with Paul Tudor Jones, Sit came away with enlightening insights on inflation within digital assets. While global fiat inflation is viewed as bullish for crypto, Sit learned from his meeting with Jones that inflation is rampant in the digital asset space itself. The advent of Dogecoin and the Shiba Inu token demonstrates the inflationary nature of crypto as many new tokens come online with multiple tokens idolizing the same breed of dog. In addition, Sit gives us his outlook for 2022 and explains why we may see some volatility in the months ahead. Recorded on December 7, 2021.
Watch the full interview here
Leslie Lamb (15s):
Hello everyone. Good morning. Good afternoon. And good evening wherever you are. My name is Leslie Lamb and I'm the host and producer of the Crypto Unstacked podcast. Today. I have a very special opportunity to be guest hosting on Real Vision. And here with me today is Darius Sit co-founder of QCP Capital, which is one of Asia's largest and most respected crypto OTC desks. Hey, Darius. Welcome back on Real Vision.
Darius Sit (42s):
Thank you, Leslie. Good to be here.
Leslie Lamb (44s):
Yeah. So last time you were on the show, you and your co-founder Josh and Raul Pell covered really a number of topics. Basically you gave the primer on how QCP Capital got started, what your main businesses are. You covered everything from real Crypto use cases in Asia, specifically on the topic of stable coins and settlement to ways that yield capture opportunities are being democratized through Crypto. So for those of you tuning in, if you haven't listened to the last episode, I highly encourage you to do so as it puts our conversation today with Darius in good context. So Darius, what this means for us today is that we're going to be exploring and teasing out themes that build on your last conversation with Raul.
Leslie Lamb (1m 32s):
And there's a lot to talk about, but I think it would be great to break down our conversation in a few thematic buckets. One are the global macro drivers that you think are really impacting the crypto macro space and the crypto market space, your crypto macro observations. I know you have a lot of those, your thoughts on crypto market micro structure, as it relates to CFI and defy as well. Let's start with your, your meeting with Paul Tudor Jones. Actually, that would be quite fun to kick things off.
Darius Sit (2m 6s):
Yeah, that was a good one. So I was in Miami last week, met up with Paul Tudor Jones. I think it was time to see the tools really collide and converge. I mean, I had to change my trip schedule to, to go down to Palm beach to meet him. He was a nice guy, you know, I'm very well informed on what's happening in the crypto markets. I mean, the fact that fact alone is an interesting one that he has been, you know, I mean, he, he, he, he was the one that sort of pulled us out of the crypto winter. Right. I mean, back then when Bitcoin was, was like 4,000 or so, you know, it was the announcement from that he had bought Bitcoin that, that sort of took us above the level and, you know, and then we haven't looked back ever since.
Darius Sit (2m 49s):
So I brought up the fact that he was very amused by that, but yeah, he's been a big, big supporter of Bitcoin as a inflation hedge, and he has been Solano bull as well. So, you know, I think, you know, he's, he's, you know, he's probably a bit more into the space than people think at the same time, you know, he's, he's also been quite amazed or shocked at, at, you know, some of the valuations that we've been seeing in crypto. So I think not just crypto right in macro as well. So, you know, we to be discussed like has large trading at tree ATP, or we discussed inflation numbers and we discussed crypto valuations as well.
Darius Sit (3m 39s):
So, you know, I, she had some anecdotes or some projects, like all the gaming gilts trading at billions of dollars, the, some of the five projects trading a billions of dollars. And, you know, the, he was very concerned that we are at a tail end of a bull cycle. So, you know, I think that that's something that, that he, he brought up that he, he hasn't been seeing this kind of frost since the, the, the, the tech bubble. So at the top combo, I mean, so, yeah, I think pretty interesting conversation overall, you know, the message that I took away from him was, you know, do, do, do be wary of, of, of valuations and inflation.
Darius Sit (4m 21s):
So, you know, something that we are looking at, you know, planning for as well at this point,
Leslie Lamb (4m 25s):
Talk about that inflation story. So for, for those who aren't familiar or even know that Paul Tudor Jones is in Bitcoin, he indeed is. And I'm sure his portfolio has, has grown a tiny bit since he first allocated to the space. But when he first announced this, he put forward this thesis called the great monetary inflation and very fittingly. The acronym is GMI. This thesis is the reason why he believes Bitcoin as a store of valley, right? As you said, Darius is a sound hedge against what he calls a new inflation era. And what he is referring to here really is a growth of the <em></em> money supply, right.
Leslie Lamb (5m 7s):
Which has really outpaced real economic growth. And this really isn't something we've seen since the inflationary periods of the 1970s and eighties, right under the fed chairs, burns Volcker and Greenspan. So does this dynamic Darius worry you, the fact that inflation the CPI in the US is, you know, 6% we started out the year and, you know, near 1% or so. And how much does this narrative impact?
Darius Sit (5m 37s):
It has a strange impact on crypto, right? Meaning that in one sense, it has benefited crypto because, you know, the, the cheap money has pushed crypto prices high, right? I mean, no one can deny that at the same time, you know, how crypto react to a correction in traditional markets, you know, when there's high inflation and the fed, the fed is forced to taper. There remains a, quite a big question for everybody, you know, as to how, how the crypto markets and how crypto valuations would we react to traditional markets in response to inflation.
Darius Sit (6m 21s):
So inflation, hedge on one hand, but at the same time, you know, it also has that correlation when there's a de-leveraging cycle. So, you know, a bit of a strange one to tackle. I think one thing I discussed with Paul as well was that the inflation theme is not just a case of the fed printing money. You know, historically it's always been central banks print money right now in crypto. We have a situation where everyone can print money, right? You and I can print money again, I can, I can create a token and print of a billion dollars overnight if it's possible. Right? So we have a situation where inflation might be worse than we think, because it's not just the fed printing money, it's every other project and every other person is printing money.
Darius Sit (7m 8s):
So the question is we head into a situation with hyper inflation, you know, literally, you know, I mean, I mentioned this to him that, that the, the, what the tem unicorn has become a bit of a misnomer in, in, in, in crypto because every other project has a, is a unicorn. So how do you justify that? How do you under, how do you, how do you make sense of that in this environment? So, you know, I think what he said was he feels, he feels that, you know, he feels very cautious, but at the same time, he also said that he would never shop Crypto. So a bit of a mixed message there, right? You would never shot crypto because, you know, the amount of, you know, the, the, the positive feedback loop that happens here could go on in quick one for a long time, you know?
Darius Sit (7m 54s):
And, and it's very hard to model the end of it. Right. He says, it's a bit, it's a bit clear of what traditional markets, he feels like the kind of the calendar year w w create market highs as they do, as they have done in markets, many markets before, but not too sure about crypto. So, so yeah, I think it will be all, we are all aware and especially, especially for us to who have have one foot in the venture side of things that, that valuations are a bit crazy, but the, the truth is the, they can, and they probably will get a bit crazier before, before we see a market high. So, yeah, I think a few, a few themes to think about, no real clear answer to that, but his advice was, if you are weighing the money on some of your stuff, you know, Miami might be smart to take some off the table
Leslie Lamb (8m 45s):
Meeting prior to the weekend sell off or during,
Darius Sit (8m 50s):
It was just prior to the weekend sell-off. So I had met him and, you know, we had posted a summary or some of his views in our usual a market update and broadcast, and I don't think he caused it, but it was quite timely.
Leslie Lamb (9m 9s):
Yeah. I mean, this is another big topic I'm sure on people's minds. Right. Of course, when they open up a coin gecko and the entire market is, is red people are definitely concerned, but how would you characterize the latest sell off we saw this weekend?
Darius Sit (9m 24s):
So I think the latest offer is pretty interesting, right? I mean, obviously from the price action and the gappiness of it, it was a partly caused by liquidity. The interesting thing for us is that the sell-off, I think it's probably more China led because, you know, even though, you know, right on the sell-off, you have all the, all the derivative exchanges, all having the pups trader at a negative funding, you know, obviously that always happens because people's unwind their leverage positions and, you know, the pub goes into a negative funding due to that, but the funding in the more Western or global exchanges normalized very quickly, the negative funding in the Chinese exchanges have persisted, I think up to now as well, you know, negative findings to happening there.
Darius Sit (10m 16s):
So the, the persistent and the continuous selling seems to be coming from, from the east. And that makes sense, because, you know, there have been a few bearish pieces coming out of China, you know, with the failure of, of some of the evergreen related, you know, bond one repayments, the possible delisting of, of DT from the New York stock exchange. So then this seems to be a bit China led. And the question I have is, you know, we spoke to Paul and we are expecting a correction sometime next year, right?
Darius Sit (10m 56s):
Either the turn of the year or Q1 Q2, and the fed starts to, to, to really taper my question is, I'm asking myself is whether this Chinese effect and the Omnicon virus has brought that market pop a little closer. And with that said, you know, just today we saw the biggest buying of call options we've ever seen on our desk, literally 10,000 Bitcoin requests for calls expiring December in January. These are sizes that I only used to see when I was at a hedge fund in the bank.
Darius Sit (11m 37s):
I'm now seeing it in crypto. And, you know, it's, it's quite surprising to me. So a bit of a mixed signal, I think, you know, we could possibly personally, I think we could possibly squeeze higher before, before coming off again, there is real setting pressure, but there is a, there are signs that, you know, with some, a lot of D de-leveraging selling going on, plus this, the mindful calls we could see spot squeeze a bit higher before coming off, so hot time to market. But I, my, my sense is that that would probably be the reaction portfolio in this self
Leslie Lamb (12m 14s):
Options structured right now, is it leaning one way or the other, you know, mix of calls and puts what's the kind of color that, that people are asking you guys about?
Darius Sit (12m 25s):
Yeah. So, I mean, interestingly enough, you know, the flavor of last month was the big buying of much 15 K ether calls, and mostly create that demand was created by Rouse GMI report, where he recommended buy ether 15 K much calls. So funnily enough, we've, we've called it the Raul effect because it actually caused a shift in the kink, in the, in the Volcker for much, you know, there was so much bang of the, these marketing calls that eat evolves were very elevated. So at the time that the interesting thing is that Bitcoin and ether were treating the same realized vol so that the actual vole, which was the same, but eat the in plights, especially in the March tenor and on the call site was trading 20% higher on the implied side.
Darius Sit (13m 19s):
Right. So there was, there was a tangible effect here, which we were able to fade, you know, sort of a relative value, vulture it against Bitcoin that worked out pretty well. But since, since last month or so since in the middle of the month or so we have seen a persistent, higher demand for puts. So calls calls relative to put calls have been, he put in there, have ever been relative to the market is slightly concerned about the downside. That's possibly why a lot of people were buying these calls as well, because they are relatively cheap. But yeah, I thought we were visiting a good mix of both and, and huge sizes as well.
Darius Sit (14m 3s):
The interesting, the most interesting piece for us in recent the recent two months has been the, the groove of this, these options in the defined market. Right. You know, before these few months, I think, you know, default options were not that scalable. We didn't see them trading big size, you know, but they've come and they've come up in the last few months in a huge way. So now they're trading on average about a billion dollars lotion or a month in defy options. And th that, that's something that I find extremely interesting in, in the option market as a sort of development on, on the infrastructure.
Leslie Lamb (14m 37s):
I definitely want to dive into your defy activity because as he mentioned, I don't think people realize the size that you're trading, you know, in the <em></em> space. Right. So let's maybe take a few steps back and give a little bit more color on volatilities specifically, you know, within kind of Bitcoin and Ethereum markets, because during the last conversation with Raul, you talked about how Asian investors are sophisticated in volatility selling strategies, right? So when you say, you know, you've seen the largest size you've ever seen when it comes to options, give us some examples of, you know, kind of how Asian investors are looking to protect on the downside, as you say, as it relates to Bitcoin and Ethereum,
Darius Sit (15m 28s):
You know, so, I mean, the, the last cat we had, we roll a lot of the investors have typically been very youth seeking. So a lot of our book was, you know, typically typically sell vol high Hikari, you know, passive traits, what we've seen and not particularly Asia. I think this is more of a global, global thing is options have become a means for, for expressing direction as well as for protection, because of course, you know, with, with spot markets, I would say the new demand for, for spot has been grateful for, for crypto, but at same time, you know, the amount of leverage that's in the space now has meant, I was just about liquidity, a bit more tricky.
Darius Sit (16m 23s):
So for example, if you look at the, the move on, on, on Saturday, and if you were trading spot, you were finding very difficult spreads. Why it's very difficult to manage one way for hedging, downside has been buying options, right? To ensure that you don't get caught on the wrong side when the market gaps. So I think, I think there is a conversion between the <em></em> two worlds are starting to collide where, where, where the players that are starting to come into crypto are more sophisticated players. Right. You know, we, we have had hedge funds onboard with us previously.
Darius Sit (17m 4s):
We have, we, you know, since the last call we had, and now we have like actual, proper good name, hedge funds of onboarding with us, looking to do derivatives, starting to get onboarded with a few banks to do crypto options as well. So I think when, when you have these players come in, it starts to look, the profile starts to look a little bit different. It's no longer just simple strategies for, for Kerry. You start to have structures to express a specific views, start to have structures that, to, to express a, you know, as an underlying layer for Ferris structure products or, or for various as a products where, which are much more sophisticated. So I think the, the crypto derivative landscape is, is definitely becoming a bit more advanced in my mind, clear is coming in.
Darius Sit (17m 50s):
And I think it's about in a very interesting phase where we're starting to see just this transition and the volumes and the come in. So, you know, it would be interesting to see how the market reacts to this and how the market develops from here. Yeah,
Leslie Lamb (18m 3s):
Absolutely. So QCP runs a book. I think that is well, well above $2 billion right now, across crypto exchanges spot and derivatives, OTC, and defy. Right? You touched a little bit about your defy activity, just a short while ago. And, and you said something that's interesting, which is not defined options you think are scalable now or relatively more scalable than they were probably just a year ago. Can you talk about D the define options trading landscape, because that I think is quite niche, even for people who are in crypto.
Leslie Lamb (18m 47s):
I don't think it's really well understood.
Darius Sit (18m 49s):
I think it's niche now, but I've got a feeling with the recent developments. It will become a very common thing. Let me explain why. So, I mean, you know, with, with defy, you know, you guys are very well aware of this as well. You know, we had the very typical borrowing lending over collateralized, boring lending, and the AMMS as, as the mainstay for, for, for the device piece, this, these, these protocols and the underlying tends to be more linear products, right? The main reason these have been scalable in defy is they function very well with our intermediary, the AMM functions very well on his own without intermediary.
Darius Sit (19m 30s):
So that's the boring ending. You know, it's, it's, it's easy to manage liquidations for these model for this margin lending or the no mind, no margin lending. And even for, for spot trading spot spot trading, you know, it's fine as well. You know, DVD X has a decent volume linear products lend themselves well to defy. So, you know, that that pit, that that piece has been solved by the fire. So, you know, it makes sense easy, easy to do the problem with this is that a lot of the yield that comes from, from, from this is not from, it's not an organic yield. So to speak a lot of the <em></em> comes from the native token or the native tokens being given to the investor.
Darius Sit (20m 19s):
So you have sort of a inflationary model, right? Where you have to bring them out of order. You have to, you have to increase local supply in order to give the yield. Right? So we see it as if I, 1.0, right? Linear products deal coming mostly from, from token confronting and options have traditionally not lend themselves well to defy. The reason is because of liquidations, it's easy to do liquidations on a linear, audible right. Lenient product, but when it comes to options, it's a bit tricky even for their bit, right. Even though they're a bit, it's a bit tricky because, you know, let's say you have a big book on therapy and, and, and, you know, it's getting liquidated. You know what they're a bit we'll do is stay with square up the Delta, right?
Darius Sit (21m 3s):
It was scrapped the Delta in pups. You know, the portfolio would be Delta neutral, and then they will take some time as an, as the exchange, try and undermine your positions, even those big centralized exchange, liquidating non-linear products is tricky. So the question is, if you put this process in a defy environment, without an intermediary, in my mind, it becomes almost impossible, you know, to do it without intermediary, because the Greeks, the non, the nonlinear, the nonlinear part of it is very difficult to liquidate. So the clue, the question has always been, you know, can, can options and other non-linear products ever will in a defy environment without intermediary.
Darius Sit (21m 47s):
And, and before, before this, these few months, I think, you know, the answer has been no, no, no. We haven't seen that in a very scalable way with all the native device option, audio books for this very reason, the only way we will possibly if they were fully collateralized. Right. But what, what happened, what has happened is there's been a shift where the model has studied to a hybrid model. So the, the first guys to start, this was ribbon finance. So they, they did an option vault where you have the investment, the collateral management, the price discovery, and the settlement on chain, but the risk management of the options is done off chain.
Darius Sit (22m 31s):
So what happens is you have the usual investors take us taking the option, volt, the protocol then selects the option and the market maker comes into buy the option. It's a really, it's a very elegant model because the parts that need to be trustless are trustless, and that works well. And the parts that need to be off-chain are off-chain right? So in this case, if you have the, the, the stakers or investors, you know, fully collateralized selling puts and calls, and then you have the market maker buying the option contract, what you have now is you can tokenize that option contract, and you can treat that around.
Darius Sit (23m 12s):
I mean, this will, this, this part has not, it's not, it doesn't exist yet, but you can then organize option contract, and you can treat it around without Caleb liquidation, because there's no, there's no liquidation. There's no liquidation concern because once one part of this whole piece is fully collateralized. So if you can see, you're actually able, if you have enough votes, you are actually able to create a full option or the book with all the various contracts being traded freely between market makers, of between users without issue liquidation issue. So, I mean, this is a very elegant solution. So we are at phase one of this solution where people are putting, putting the dollars, stable coins coins in the volts, and then they are selling color, put in a couple of calls on them, easy to use elegant solution.
Darius Sit (24m 1s):
The market makers come in and bid market makers on the buy-side investors. On the south side, that's become very scalable. So Reuben has been a great validation of this first phase, first phase of the model. You know, they, they raise huge AUM very quickly, and we have seen more of these options volts, which, which is, which is why it's creating that volume, right? So Ruben has about 200 million data, not has, has 50 million now, and, you know, various other guys like stick Dow, siren, and a few other guys. And altogether, you know, it's creating quite a bit of volume in the market. And the interesting thing for me about this model, it's not just that we have found a way to make options scalable and defy to this hybrid system, but more importantly, it has created liquidity in Aqua options that we've never seen previously.
Darius Sit (24m 54s):
So, you know, we've been running option book for three, four years, and we've always wanted to, you know, increase the size of online activity, but it's been a, it's been a tough one, right. You know, I did a mixture of people not understanding exactly how, how to, why they should do options on all coin, plus a mixture of, you know, this little vague on market for it and no liquidity. But, you know, with this model, we have seen a lot of interest for all quite options. So now we, we hit on, on data nuts. There is a $10 million Algren option vault. There is a Luna vault there's RV volts. We even having a dollar spell vault X vault. You know, so with this model, ironically, not just options on defy, it's all quite options that are being created, you know, with this seat, that's, today's liquidity, not just for defy, but with this initial seat or the Aqua options in defy on the default options volts, I think the, it is creating liquidity in CFI as well for these options.
Darius Sit (25m 56s):
So there's a bit of, it's very interesting to me. Wow.
Leslie Lamb (26m 0s):
That that was a lot, a lot of good stuff to parse out. Really. I mean, number one is I imagine a lot of people who are tuning in today are institutional investors in the traditional financial space. Now, one theme within defy, you know, as we sit here and of 2021 is what protocols exist to support institutional activity, especially those who are kind of coming in from the traditional financial space, not necessarily the crypto native institutions is ribbon finance, a protocol these institutions can use right off the bat,
Darius Sit (26m 42s):
Who does a very interesting question, because that's something that we've been talking about with various financial institutions and regulators. Right. What I think is amazing about this is, you know, typically as you know, in the crypto world, crypto products, crypto trading products tend to mirror what we've seen in traditional finance. So it's almost like, you know, playing a bit of catch up with some modification. I mean, you know, you guys know the, the event of pups, the event of the way options are treated, we are copying traditional finance market structures. What I've found about this pot of defect options is we are taking that one step further because this is, there is no, it is Greenfield.
Darius Sit (27m 27s):
There is nothing to copy from traditional finance here, we are talking about how do you solve for treating structured products and nonlinear products without intermediary Patricia finance? I has never had to deal with this. So this is pure innovation, right? It's pure innovation as to how do you disrupt asset management? How do you disrupt derivatives treating errata, have this trading by picking out the intermediary for these products? So, no, no, no, it's not. It's not a conversation about who the prime broker is or how much, you know, margins or whatnot. It is creating a new way of treating that picks out a lot of the old way of doing things. So if you look everyone finances, two disruptions, right?
Darius Sit (28m 8s):
One disruption is derivatives trading. We don't intermediary. The other disruption is asset management on chin without the usual, you know, the usual setup of funds with the fund admin and, and all this, you know, where you have to be accredited to invest, you are putting in strategies that, you know, hedge funds use, package it into something simple and allowing somebody to tap on this, on these strategies, whether he has a million dollars or he has $10. So it is disrupting both the registrating and asset management, making it a lot more accessible.
Darius Sit (28m 49s):
So let's do a question, you know, as to how, how institutions might see this. I think even though it's, it seems really far out, right. I think this part of five might be more familiar to them than the defy that we see. You know, if you talk to them about MMS or, or, or, you know, staking staking it in boring lending with, with, you know, giving token as a yield, it seems less familiar to them. Then an option contract that is fully collateralized and then can be treated. I think this again, could be the entry for, for defy, for, for institutions and banks to come into defy. So we have been discussing this with MES, you know, we've been discussing this with banks, not sure how much I'm at Liberty to say as to what the development is going to be, but there has been real effort on the part of the Singapore regulator to try and see how this can be the way in which institutions can participate in defy because the underlying product is not, it's not nothing too funky, right?
Darius Sit (29m 53s):
It's understandable to them is option, contract strike kind of expiring. You know, it looks simple. You can treat it, you know, you can treat it as you would in, in, in, in, in traditional finance, the underlying it's probably Crypto, but that's something that is familiar to them as well. So I think, you know, this, this development of diva options, volts actually has many, many ways that you could go and develop my feeling is that it could bring in a new wave of interest, again, not just from the usual crypto native, but from non Crypto financial institutions to get more familiar with what we are doing as well.
Leslie Lamb (30m 35s):
And I think what's going to prove these protocols too, is by stress testing them right in, you know, a bear market where <em></em> is really put to the test, not only the, you know, spot markets, which is kind of how, how defy has been evolving over the past couple of years, but now more so in the derivatives markets, as you mentioned, right? So that will really put some weight behind, you know, whether this protocol or not necessarily ribbon all the other ones that you mentioned as well are suitable for these institutions, because I think that's what they want to see sort of historical precedents for, for trading on these protocols.
Leslie Lamb (31m 15s):
They might not be familiar with. Yeah.
Darius Sit (31m 17s):
I think the main concern, again, with institutions, for trading on defy is, is this regulatory part of it? I mean, in my street, my son is strange to say permission defined markets because I mean, naturally device meant to be permissionless, but, you know, and, and it's a bit of a oxymoron, right. You know, an irony, but, but is it possible for us? Is it possible for the regulator to, to create a market where they have oversight sound strange, but you know, remains to be seen. I mean, over the last year, I've had conversations with MES, I've had conversations with the, the fed, you know, and, and this, and one thing they're all scratching their heads on is how, how does the government regulate defy?
Darius Sit (32m 2s):
Is it impossible to regulate? If I, I mean, we all know that, you know, the admin that a lot of the defy founders was served by STC, you know, and everyone's still wondering, you know, what exactly are they, who exactly are they serving? You know, the, the founders themselves probably don't even know which jurisdiction they are from. And also they are, they are not sure who the, who is getting sued as well. So, I mean, I think this bit of defy the regulatory part of it is going to be still remain as a, a bit of a challenge. You know, how, how, how exactly does the government ensure that defy investors are protected and that, you know, and that, you know, that, that the founders of various projects are acting in their best interest and how exactly do they have oversight?
Darius Sit (32m 49s):
You know, I think that defy doesn't lend itself well to that. So I'm interesting to see how this tussle will play out as well.
Leslie Lamb (32m 56s):
I think it, would it be really helpful for the audience is to understand how Asia particularly has been drawn to defy platform's defy activity. You guys are very much specialized in helping to facilitate flow in Southeast Asia is defy big in these regions,
Darius Sit (33m 22s):
I would say increasingly. So the interesting segue for salvage Asia to come into defy has actually not been options or, or financial products. The biggest pool for, for the, for, for Southeast Asia has been the play to own space, actually, infinity, for example, that has been a, an absolute phenomenon in Philippines. And in, in Indonesia, especially as you know, we are one of the shareholders of taco crypto, the highest traded volume coined there by far in total, crypto has been SLP from actually Infiniti in Thailand as well.
Darius Sit (34m 14s):
And in Philippines. So their market has actually a pool, a lot of, you know, lay people, a non crypto natives to become crypto natives. So that has been a phenomenal in the, especially in the last six months or so. And the interest has been out of there. And then, you know, the, these people have then gone on to explore the defined market. So we have seen a big expansion in debt. A lot of the interest in, in default options and out of defy products have been, we have seen from the communities that have formed, you know, from the Plato in space as well. But at the same time, you know, the Asian wealth, the Asian wealth community is now a buzz football, right.
Darius Sit (35m 2s):
You know, not despite not necessarily defy, but you know, they have been a bus with its, you know, family offices. Now crypto is a very normal thing for them to be doing. In fact, you know, if, if your family office or a big private fund, and you're not doing Crypto, you know, you're, you're, you're a bit behind the curve already. And I think that, that, that sentiment has been a very positive one for us here in Asia.
Leslie Lamb (35m 29s):
Same as what I'm seeing here too. I mean, Hong Kong, same as Singapore, a number of family offices. And, you know, one of the main resource difficulties, I think for family offices is just knowledge, right. Knowledge and actually talent too, because, you know, family offices, oftentimes just a couple of people, especially, you know, a single family office, right. With one person bearing the burden of having to understand not only what's been happening, but also what they should be expecting and looking, you know, looking ahead and also pitching to the investment committee. Right. And so when they're doing their due diligence, trying to figure out not only what protocols to use to capture yield, for example, if, if they want to go that route, but also just getting set up infrastructure wise, right.
Leslie Lamb (36m 22s):
What custodian do I use? How do I manage to get funds from, you know, this bank over to your, your platform? How have your conversations evolved with family offices in Asia, since when you guys perhaps, you know, first started maybe year two of QCP to now, as we sit here in 2021, like, has it been easier for these guys to be getting in?
Darius Sit (36m 48s):
No, I think you're, you're absolutely right. Right. Most of these, these guys, they have crypto in a very private capacity. So, you know, they might be on Binance or FTX and, you know, they're treating, treating trading spot in Bitcoin, ether, old coins, more, more commonly. We see that these guys are more comfortable getting into the space to the venture side. Right. That that bit is less complicated. Go to execute, implement, and settle. Right.
Darius Sit (37m 28s):
All they do is, you know, right. Assign a soft and, you know, assign a safe, you know, you, you, you, you get it on a venture deal and you're, you're given tokens. And then all you have to do is sell it. So a lot of them have just have to solve for how do we sell? Where do we sell? So, you know, we see a lot of debt, the macro site, you know, we've been seeing some activity in there as well, but debit is a bit slower because like you mentioned, right, how many fundamentals are there that can deal with crypto can find a minute ever accept, you know, investment of crypto in kind are there, they're still there still, isn't a big prime broker in the space.
Darius Sit (38m 11s):
<em></em> a lot of these funds need, but yeah. So I think, you know, it's, it's still a lot more difficult on the macro side of things I would say, but, you know, the, the kickstart has really been on the venture side. I mean, for us, even for us, I know we set up and asset management company with a macro fund and a VC fund. The interest has been very much on the VC site. Right. You know, given the, I mean, between all of us, the returns on the VC side have been spectacular in the last couple of years as well, that has been the best performing strategy, you know, for anybody in crypto, including ourselves.
Darius Sit (38m 53s):
So, you know, I think the VC side is, is the draw. And once perhaps when the, a VC returns that to normalize them, you see more interest in the macro side, I think. So it's almost like two ends of the spectrum. Right? Most of the, most of the traditional market guys either want a very safe Delta neutral karyotype strategy, or they want DGN venture strategy. Right. So a bit of a barbell effect going on here. Yeah, yeah.
Leslie Lamb (39m 24s):
Rarely guys in the middle, or like, you know, what, I'm satisfied, just kind of doing this or that the, either want those thousand percent returns or they
Darius Sit (39m 33s):
Leslie Lamb (39m 37s):
I think what would be really interesting and maybe this is something for Real Vision is to put together a little fireside chat or panel with, you know, family offices from different regions, maybe because the on-ramp into crypto, the decision-making process, and then the execution process, right, as you rightly mentioned, either a be straight into the equity and, and maybe token investing side of things or, or whether it be, you know, direct into trading within CFI, or even for those who might be a little bit more advanced in define those conversations look very, very different.
Leslie Lamb (40m 17s):
Right. And they also probably function on different timeframes as well, depending on the setup that the family office has. So that could be a very interesting one because the family office narrative tends to be quite opaque. Right. There's not, a lot of people are open about it because rightly so, right. It's, it's their own capital and there really hasn't been a need for them to kind of come out and talk about how they're thinking about it. But anyways, I think that would be quite an interesting conversation.
Darius Sit (40m 49s):
Oh, that would be very interesting. And I mean, beyond that, right. I'm talking about how, how hedge funds can get into the space. Right. We've been having conversations with, with big hedge funds and some of the questions they ask are really funny. Right. You know, stuff like, how do you ensure people don't steal my tokens and runaway that kind of thing right now? I mean, a it's a bill, it's a bit funny to us, but you know, it's re it's a legitimate concern. Right. You know, they aren't, they're not aware, you know, that you have solutions institutional grade solutions that like, like five blocks and courage, that, that, that I have good security, you know, institutional grade, a settlement, knowing that they, they sort of still thing that could go with student a down Asia.
Darius Sit (41m 28s):
So I think, you know, having, having a conversation about infrastructure SMEC could be very helpful.
Leslie Lamb (41m 36s):
Yeah, absolutely. So Darius, as we wrap up here, I wanted to touch on two different, but related of course, questions one on the macro level, which is how can we expect the crypto market to behave coming out the gates in 2022. I'm obligated to ask you this question, because when this podcast comes out, it will be around, you know, end of December probably are around Christmas time. So that I know is top of mind for those who are in crypto and those looking to get in. And then the second question, I'll, I'll ask you in just a bit,
Darius Sit (42m 16s):
I think, you know, like we discussed earlier, you know, this has been a phenomenal year for returns, right? And I think the crypto market will take direction from the rest of the macro market. So as Paul Tudor Jones rightly pointed out next year's market macro environment is going to be very tricky. You have a situation where it's, Why Crypto guys, equity guys have record profits coming out with a year. But when w when December 31st becomes January 1st, that a hundred percent return becomes zero. And we start from, we start from flat.
Darius Sit (42m 57s):
So the question is any drawdown from there will look like a loss. So there is this psychological effect that people are going to be dealing with where on the risk reward basis, it makes sense to take profit on what you have right off the bat. And then you have that spiral that could happen where, you know, people take profit, it's like cutting positions. And we could see, you know, a risk of situation, a de-leveraging situation at the same time, you know, and the backdrop you have, you have high inflation, which is going to force the Fed's hand at some point. So the question was also what happens to both equity markets and crypto markets when that free money tap starts to shut off that that is a question that we all have to tackle my take on this is make sure you have some dry powder, right?
Darius Sit (43m 57s):
The crypto markets could, couldn't go on in this positive feedback loop for a while, right? I'm not saying it's going to crash, but it might, it will correct. At some point, I think, you know, whether it from anywhere from now to Q2 next year, I do expect some corrections. I mean, our strategy for this has been to on the option book at least has been to buy motels. You know, the, the details tend to be under-priced in crypto. And when you have this kind of macro situate tricky, tricky situation, and the moves can be very outsized. So buying tales and buying gamer has been something that we've been sort of positioned into to, to deal with, I think, a higher level environment.
Darius Sit (44m 40s):
So directionally, I don't, I'm not sure, you know, at the end of 22, how we will look, we could very well, you know, have another record year, like Paul said, you know, he's not going to bet against Crypto, but I'm pretty sure that, you know, we will see a higher volatility and a more gappy environment. So, so my, my, my, my complicated call is in the Volvo side, I think that we will see a higher vol environment and we'll get the markets, but getting which way, you know, it could be down than up, up then down that bit, not social.
Leslie Lamb (45m 21s):
So then a follow-up to, that would be more on the micro market microstructure level, which is what changes in fundamentals might affect this macro thesis that you have.
Darius Sit (45m 34s):
I think the micro structures that we described in, you know, innovations in, in, in, you know, the way structure products, the way options are being treated on defy, that that bit of innovation is extremely exciting to me. Because again, you know, we are taking, we are creating systems, creating a market structures that have, that the traditional markets have never had to deal with. You know, we are creating the new way things are going to be done. I still think that crypto is under owned. You know, I think, you know, you, we were at the Singapore, you know, financial markets association, you know, there was a poll and then only about fifth or quarter of the audience actually owned Bitcoin.
Darius Sit (46m 26s):
So as we see these, these, you know, the traditional market segments start to convert into crypto owners, adoption will grow. So we have a situation where tricky macro environment and tricky macro environment, potential leverage, unwind, but we also have the situation where crypto is remains under owned. So, you know, I, I, I do think that bit where more participants come in, you know, we provide some support to the market, but I hope that answers your question.
Leslie Lamb (47m 4s):
I mean, for our audience, if you're not holding Crypto, listen to Darius, become a crypto toddler and contribute to the space. Darius appreciate you so much for hopping on Real Vision. I hope for listeners who didn't tune into the first one, please do, because it is such a good primer on the way Darius thinks how QCP has been positioning itself to facilitate crypto market flows. Not only in the west, I'm sure you guys have fun counterparties in the west, but more specifically, I think, and this is where the story gets interesting is within the Asia region, specifically Southeast Asia, they talk a lot about stable coins.
Leslie Lamb (47m 48s):
Real-world use cases again in Asia. And I think in this conversation, we talked about so much Darius, but you know, a lot on just the, the macro themes to look out for as well as the really interesting defy options landscape, which for myself, this was a real learning tree. So appreciate you for hopping on and can't wait for the next conversation. Thanks. Happy holidays.
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