Yahoo Finance's Jennifer Schonberger hosts a wide-ranging discussion on cryptocurrency with three experts in the field.
JENNIFER SCHOENBERGER: Amy Arnott is a portfolio strategist for Morningstar Research Services, part of Morningstar, a resource well-known to investors everywhere. She covers emerging asset classes, especially cryptocurrencies. Isaiah Jackson is the author of "Bitcoin and Black America" and co-founder of Black Bitcoin Billionaires, the largest Bitcoin group on Clubhouse. And Gavin Michael is the CEO of Bakkt, a platform that offers crypto trading for institutional investors and an app for consumers to manage and spend crypto. Bakkt was created by the same company which runs the New York Stock Exchange and recently listed on the NYSE.
Good afternoon. I'm Jennifer Schoenberger. This part of the program brought to you in part by Grayscale. On the panel this afternoon, we're going to delve into how to invest in cryptocurrencies and how crypto could be used as a payment in the evolution of all this. Amy, Gavin, Isaiah, welcome to the program. It's great to have all the three of you here.
GAVIN MICHAEL: Thank you.
AMY ARNOTT: Thanks, great to be here.
ISAIAH JACKSON: Thank you.
JENNIFER SCHOENBERGER: Gavin, let me start with you. You're coming to us live from "The Money Show" in Las Vegas. And you've got a big announcement this afternoon. You're partnering with MasterCard to roll out crypto debit and credit cards. Tell me, what does that imply about your outlook in terms of the adoption of cryptocurrencies as a payment? And given that Bakkt has an app that allows consumers to use cryptocurrencies to pay for everyday items, what are the trends there that are informing you in terms of this decision?
GAVIN MICHAEL: Yeah, terrific. It is a very exciting morning. We made an announcement this morning with MasterCard, where we are offering the ability for our partners to be able to issue their own branded debit and crypto credit cards. We're leveraging the MasterCard network, really, with this offering to enable partners to offer their consumers the ability to pay with cryptocurrency.
And obviously, this occurs through the conversion to a traditional fiat currency. But what we're doing is providing access to this new form of liquidity in everyday purchases. Together with that, we've also announced the ability to be able to earn rewards in cryptocurrency through their card spending. So we're really driving this philosophy of passive acquisition of crypto.
And so this partnership is really a testament to our ability to be able to work with a great partner like MasterCard to integrate crypto into its loyalty solutions as well as the use of it in everyday payment. Where we see it going as we want to provide consumer choice. We want to be able to provide the ability to be able to use a cryptocurrency in an everyday transaction. And on the platform, we obviously offer so much more with the ability for people to be able to aggregate all of their digital assets in one place and be able to use them in surprise and delight moments with partners across the network.
JENNIFER SCHOENBERGER: So Gavin, what are you seeing exactly there though, in terms of the payment trends? How many transactions? How much are people transacting using cryptocurrency? And what are your expectations for that to grow with the rollout of these debit and credit cards?
GAVIN MICHAEL: Yeah, Jennifer, look, we're seeing increased demand for consumer choice and the ability to be able to use their form of payment that they really want to be able to set the way in which they pay. So whilst we're in the early stages of making this run, we really are showing the ability for people to be able to offer-- or merchants the ability to be able to offer these new forms of payment as a way to be able to acquire and appeal to new customer segments.
We see a demographic that skews somewhat younger. And what we're doing is not just providing new ways to pay but new ways to acquire customers, customers who are really striving for that convenience and choice in their payment method.
JENNIFER SCHOENBERGER: Isaiah, let me bring you into the conversation. How could Bitcoin change business and the way we do business? And do you see Bitcoin becoming ubiquitous in terms of using it to pay regularly for groceries and haircuts? And does it even translate to real estate transactions?
ISAIAH JACKSON: Well, yes, that is currently happening as we speak, just not in the United States. Bitcoin's best use case here is probably more as a store of value, as a savings account for the long term. If we get to a point where we have an economy where that's forced upon us, like other countries, then the medium of exchange era will come quicker than we think.
But I believe that the original goal of Bitcoin and now the goal of de-cryptocurrencies to become a payment system will come because of demand. And because people do want choices, they want the freedom to use whatever currency they want, I believe Bitcoin has the ability to be a great base layer. And building on top of that, building other cryptocurrencies that can make those payments is good for everybody.
Businesses are able to implement it on their side as far as point of sale. And customers are able to spend it freely. And then the issuers of the point of sales or companies like MasterCard can make money off of those payments as well. So I think it actually is a win-win-win for everybody.
JENNIFER SCHOENBERGER: So Isaiah, do you see Bitcoin as an alternative to the US dollar? You mentioned it being adopted in other countries. Do you think that the US should adopt Bitcoin as legal tender, perhaps in a similar way that El Salvador has done?
ISAIAH JACKSON: Absolutely. I think that we should take a hard look, much like Newt Gingrich said the other day, that the Federal Reserve should take a hard look at Bitcoin as a reserve asset. And we should not stop innovation with legislation. We should actually encourage it. And I believe that that will bode well for us in the future.
And if we look at the geopolitical sphere, economically, I think Bitcoin will be the standard for digital payments. So we should be ahead of that. We've already made a big move with China mining being depleted. We now, in the US, have 37% of the mining. So it's not as if we can't use our innovation for good and use these digital payments. We just have to take action.
JENNIFER SCHOENBERGER: And Isaiah, for people who aren't familiar with you, you have one of the biggest followings on Clubhouse for a Bitcoin group, right? You're part of the Black Bitcoin Billionaires group. You're also the author of the book "Bitcoin and Black America." How did you decide to pursue this, to educate people on Bitcoin and become an influencer?
ISAIAH JACKSON: Well, the number one thing in my community, I believe, is education, and in any community really. Bitcoin is the hardest part of technology and finance put into one. So I believe that educating my community in particular as a template for others to do as well, because Bitcoin is for everybody, I just wanted to make sure that we had the opportunity to take advantage of this technological revolution, which we were not able to do during the internet era.
And I think it's definitely something that is needed. And I just wanted to fill a void that I did not see. And writing this book and forming these groups have brought way more people into the space, to the point now demographically, Black people are more likely to use crypto than any other demographic group. So the work over the last few years has worked. And I believe that an all-inclusive currency should include everybody.
JENNIFER SCHOENBERGER: And you think that Bitcoin, as you just mentioned, all-inclusive, it levels the financial playing field?
ISAIAH JACKSON: Yes, long-term. It's not a get rich quick scheme. It's not going to happen overnight. But long-term, yes, if we take advantage and have a sense of urgency, absolutely.
JENNIFER SCHOENBERGER: All right, let's turn to talking about how to invest in cryptocurrencies. Let me bring Morningstar's Amy Arnot into the conversation. Amy, welcome. Is cryptocurrency part of a diversified portfolio? Do you see it as a long-term holding?
AMY ARNOTT: It certainly can be. Crypto is definitely becoming more established as a separate asset class and moving more into the investment mainstream. It used to be more of a fringe asset that was very specialized. You didn't really hear institutional investors talking about it very much until, I would say, the past two or three years.
So you have the global cryptocurrency market is now about 2.6 trillion in outstanding market cap. And so given the size as well as the phenomenal returns that we've seen in crypto, it's definitely something that long-term investors should consider if they're more risk-tolerant.
But again, I would definitely handle it with care because the volatility has been so high. Even a very small percentage of cryptocurrency can really spike up your portfolio's risk profile and level of drawdown risk. So you definitely have to be risk-tolerant, planning to hold for the long term. And also I would recommend keeping the allocation to a smaller part of your overall portfolio. So even a 1% or 2% allocation can really go a long way.
JENNIFER SCHOENBERGER: Isaiah, you're on the ground. You're talking to Black Americans at different churches across the country. What do you say to them about the volatility and the risk that they could potentially be taking on with this?
ISAIAH JACKSON: Like I stated before, I always remind people that this is not some get rich quick scheme. This is not some pyramid flip, pump-and-dump. This is a long-term asset class. And it will remain. And if you want to be a part of it, you have to think long-term.
And when people discuss volatility, I always like to remind them that in any new market, you will have volatility. But based on our historical growth, that volatility has been positive, up and to the right, so to say. And long-term, I just want people to understand, it doesn't mean it goes up forever You're not going to get rich just because you enter the market.
But you do have to have patience. You have to think of it as a long-term asset. So I just remind people of that. And I also remind people that, if you do do it long-term or think about it long-term, the volatility does not matter.
JENNIFER SCHOENBERGER: Amy, how is Morningstar recommending investors gain exposure here? Just last week, the SEC greenlighted the first Bitcoin futures ETFs. Certainly, that makes it easier for investors to gain exposure. But is that necessarily the best way? Should they perhaps also consider going to cryptocurrency exchanges, as has been the other way before these ETFs, to invest in the outright underlying digital assets?
AMY ARNOTT: Yeah, so there are a lot of benefits that come along with the ETF format. It gives you more transparency. It's easier to buy through an existing brokerage account. But because the two ETFs that are available in the US so far are buying futures contracts, they're probably not going to track the Bitcoin price exactly. They could be maybe 5% or 10% off each year.
So they're buying the front month futures contracts. So as these contracts roll over, they will probably have to be buying it at a higher price. I think we will eventually see a crypto ETF that tracks the spot price. But at this point, if you're looking to add crypto exposure to your portfolio, you're probably better off buying it directly through a crypto exchange or platform.
JENNIFER SCHOENBERGER: Gavin, Bakkt has been offering the ability to invest in Bitcoin futures. Granted, it's been for more institutional investors, accredited investors. It hasn't been through this ETF vehicle. However, what are you seeing in terms of the impact on trading? Granted, it's been just under a week. And what is your expectation there, given that ETFs have served as trading vehicles, do you expect that this could actually contribute to volatility?
GAVIN MICHAEL: I think it'll actually help smooth it out over time because you're going to see a greater set of participants in the marketplace. So as Jennifer said, I mean, we're looking for different ways to give people exposure to the asset class, either by holding it directly or through an ETF-type construct.
And we expect evolution in this space as well, to move away from cash-settled prices through the futures contracts into physically delivered contracts, as has been the norm for other ETFs that have tracked based on a commodity. We see the opportunity for a lot of product innovation in the way in which we think about these constructs evolving over time.
And in terms of being able to trade through an exchange, I mean, one thing that we've noted through our platform is that we're trying to lower the barrier to entry into the asset class by allowing consumers to be able to take alternate forms of digital assets and use those to trade into crypto.
So for example, we announced a partnership with Choice Hotels, where Choice Privileges members can take their points and use those as a source of cash to then trade into Bitcoin, again providing an easy way into the asset class. And as I said earlier, our announcement with MasterCard includes the ability for us to be able to deliver crypto rewards, another way to gain an asset holding in this space in a fairly non-threatening way.
JENNIFER SCHOENBERGER: Amy, when investors are approaching investing in this space, should they be thinking about investing in cryptocurrencies not just as alternative payments but also as an emerging technology? Should this be thought of, perhaps, the way the internet was in the 1990s?
AMY ARNOTT: Absolutely. I think you have a lot of the same kind of growth trajectories. And Bitcoin can play an attractive role in a portfolio because it's traditionally had a very low correlation with mainstream asset classes like stocks and bonds. But you could also consider it a growth asset and, really, a play on the long-term shift toward digital money and the ongoing revolution in the financial technology landscape.
So you have lots of exciting developments in payment processing, blockchain, smart contracts, DeFi, NFTs, gift cards, as Gavin said. So I think all of these developments in the space, when you're buying cryptocurrency, you're not directly investing in the underlying technology. But you are getting indirect exposure to it.
JENNIFER SCHOENBERGER: And Gavin, you've rolled out these crypto debit and credit cards. Certainly, crypto is becoming more intertwined with the traditional banking system, the traditional financial system. How do you see that evolving? And what does that look like to you?
GAVIN MICHAEL: I think one thing we need to step back and work out is where we're complementary to the existing system, where we're replacing, potentially, assets or methods or approaches that we see as somewhat inefficient, and really start to stay focused on bringing those to light.
As Isaiah said earlier, I mean, Bitcoin was always envisaged as a form of payment rather than as a store of value. We're evolving now at that inflection point away from a store of value into a form of payment. And initiatives like the one that we announced this morning are really helping us bring that into everyday payments.
And we're excited by the opportunity to continue to drive that holistic story around digital assets, to be able to provide the ability for consumers and businesses and institutions to access these new markets at scale. But the other important point of the announcement this morning is we're working with an established financial services player with MasterCard as our partner to be able to offer these to existing issuers on the MasterCard network.
And by doing that, we're really marrying together two approaches. And that's where the innovation will occur. That's where we're excited. Looking at traditional rewards propositions for credit cards and evolving those into something that involves crypto is a tremendous amount of innovation that really shows that these two technologies, these two approaches aren't necessarily in competition. They're in cooperation with each other. And the end beneficiary is the consumer.
JENNIFER SCHOENBERGER: Gavin, SEC Chair Gensler was on our All Markets Summit earlier this morning. He told our Brian Cheung that if we don't put proper protections in place, things are not going to end well.
The acting comptroller of the currency has likened crypto to derivatives in the early 2000s. He told me in an interview last month that if we don't regulate this now, we're headed for a financial crisis. Do you agree with any of that? And where do you see the potential regulatory gaps here? Where do we need regulation, given that you are a crypto exchange that is indeed regulated?
GAVIN MICHAEL: So exactly. I mean, we come out of-- Heritage is out of Ice, as you spoke about. We take a very, very strong view on regulation and on controls. In fact, our platform is engineered with all of these in its core. We've built the platform to be digitally asset-native. And we're doing it in a way that really allows us to respond quickly to the changing regulatory environment.
Having said that, we're held to the same standard as any financial institution with respect to BSA and AML and KYC. And we take those controls very, very seriously. They're engineered into the core of our platform. And we take that approach of being regulatory-first, privacy-first because we agree that we need to see regulation evolve to take into account the changing environment we find ourselves in.
But having said that, I think it's also important that we look at the areas in which we are working to identify those that we are complementary to, those that we are replacing, and those that we are introducing as new points of innovation, and ensure that the regulation flows around those in the same way.
We've done this before. We did it with the advent of the internet when we brought digital banking to life. And I see many of the lessons that we learnt from there and making sure that the regulation that we're using applies correctly to the areas in which we're working as being beneficial as we think about our approach here.
JENNIFER SCHOENBERGER: Well, unfortunately, we are out of time. I know that we could probably talk about this all afternoon long. Amy, Gavin, Isaiah, thanks so much for being here. So appreciate your insights.