JP Morgan veteran Daniel Masters explains how blockchain will end commercial banking


Even though bitcoiners and crypto enthusiasts try to deny it, bringing in converts from mainstream finance is the best way to legitimize and market the industry to many investors.

One of the first executives to take the plunge was CoinShares executive chairman Daniel Masters. After a long and distinguished career as a commodities trader at JP Morgan and elsewhere, he stumbled upon bitcoin after the end of the commodities supercycle following the global financial crisis. Masters immediately saw the potential of bitcoin and blockchain, and he realized that his background as a technologist and commodity trader was tailor-made to make him an ambassador for this new industry to a new set of individual and institutional investors.

At the same time, by setting up his crypto investment management company, he was able to look into the future of this industry and see the developments to come, as well as the upcoming clashes between crypto insurgents and operators. historical financial institutions in place. Forbes sat down with Masters to get his thoughts on the future of the industry.

Extract from Forbes CryptoAsset & Blockchain Advisor.

Forbes: Let’s talk about your proverbial bitcoin conversion moment. How did you first hear about bitcoin? What was your reaction ?

Daniel Masters: Before finding Bitcoin, I was finishing a high profile and successful career in commodities. I started at Shell Oil, spent time at Salomon Brothers, moved to JPMorgan, and in 1999 went out on my own to manage two large hedge funds (one discretionary and the other run by a thesis). Our basic thesis was that China was about to consume large amounts of raw materials and we wanted to be opportunistic. Back then the price of oil was $ 10 per barrel, copper was $ 2 per pound, gold was around $ 1,300 per ounce and they all rose over the following years as we were riding the wave of a commodities supercycle. However, in 2012 I found myself scratching my head and wondering what to do next? The commodities boom had ended – oil was not yet going to rise 1,000% to $ 1,000, volatility began to ebb, and qualitative easing put a safety net under risky assets.

Then one day I was sitting at my desk watching CNBC when I saw a bitcoin price chart on the screen. I studied it closely, much like a doctor looking at an MRI, and I thought it was a very energetic graph. The price had gone from a fraction of a dime to something like $ 15. For a commodity trader, this type of movement sets off an alarm bell and currency signs flash before your eyes.

I started doing as much research as I could, bought $ 10,000 worth of bitcoin with my own money passing it through a Chinese agricultural bank to Mt. Gox and even locked myself in a room for two days to resolve a problem on the bitcoin blockchain. In doing so, I realized that bitcoin was essentially a version of the Internet without a copy / paste function. It’s really important.

Forbes: What was your first bitcoin business?

Mastery: I’m not a computer scientist, and I’m not going to create my own cryptocurrency, but I wanted to have an adventure. Having said that, it wasn’t going to be easy. First, articulating the investment thesis for bitcoin was going to be much more difficult than for commodities. Second, there were a lot of scams in the industry around this time which created additional skepticism.

Faced with these challenges, I didn’t want clients to have the slightest doubt about the fiduciary framework in which they are investing. Therefore, I opted for a fully regulated structure which took two years to build. I have partnered with a regulated custodian, administrator, bank, legal advisor and auditors. All this work made all the question marks around us disappear, and investors only had to worry about price risk.

Forbes: How is CoinShares organized?

Mastery: In addition, you have a holding company, CoinShares International Limited. He owns three things: our interest in CoinShares Holdings, the operating company; Komainu, our regulated custody business in partnership with Nomura and Ledger; and it owns our venture capital investment portfolio that comes from our own capital. Take it down one level and you are now at CoinShares Holdings Limited which has two main streams, starting with our trading business CoinShares Holdings Capital Markets, which has achieved $ 4.5 billion in revenue this year. The second company is CoinShares Jersey Limited, where we hold the same investment and fund services business licenses that we had when it all started. Finally, we have a Stockholm-based company called XBT Provider, which is the issuer of our exchange-traded banknotes which track bitcoin, ether, litecoin and XRP denominated in euros and kroner.

Forbes: It’s interesting how your business has grown to support a wide variety of infrastructure and business services in the industry. Forbes is very interested in the future of the digital asset class, which includes but is not exclusive to cryptocurrencies. Where do you see the industry going in the next few years?

Mastery: I think you’re on the money here. I work trying to think about where the world will be three years from now and modernize my business to accommodate that point in the future. Consider central bank digital currencies (CBDCs). There are very compelling reasons for central banks to issue their own digital currencies. For example, you don’t need to touch or physically move it, you can deal with black markets and corruption, and provide real-time accounting. More importantly, if you take physical money out of the system, you can charge negative interest rates. There are eight central bank currencies on the way, two of which are almost alive in China and the Bahamas, one obviously more important than the other.

Forbes: Do you think the CBDCs will step up the battle to determine the future global reserve currency?

Mastery: There is an interesting dynamic playing out in the world of CBDCs. China’s digital currency is going to be formidable, and the United States is going to be forced to respond. It could take the form of a digital dollar or a trade war.

Forbes: How do you think this shift to CBDCs will impact traditional financial infrastructure?

Mastery: The most interesting aspect of CBDCs is the impact they will have on commercial banks and the financial system as a whole. Today, central banks issue currencies to a large number of commercial banks like Chase and Bank of America. These banks do two things: create products and services such as mortgages and deal with end users. I think we are entering a new paradigm where central banks issue CBDCs, commercial banks cease to exist and the service layer is filled with new crazy emerging companies like Compound Finance, Uniswap, SushiSwap and people who are really distributed, decentralized finance is made today. Then the final interesting layer is who actually faces the consumer. You can already see that there are several choices. Coinbase would like to reach all users, just like Binance, but probably not in America. You have wallet infrastructures like that already have 50 million wallets in circulation.

Having said that, you could also get incumbents. Samsung is now putting chips in phones, which essentially makes them hardware wallets. Amazon could offer a digital wallet. Whoever has this level down is critical.

Forbes: I don’t need to tell you that discussing or predicting the demise of commercial banks is a strong statement. Can you develop this thought?

Mastery: I think the old world is lumpy in the sense that asset splitting is much heavier than in the digital world. Stocks improve sometimes, but gold and real estate aren’t really splittable. So, it’s lumpy and too meddled. You buy an ETF; I can give you 12 service providers between you and your asset that are not really necessary. The old world is also heavily centralized, which stifles innovation because you can’t just walk into that wall and change anything.

There is a migration underway to the new world of capital, talent and even the regulatory mindset. For example, people need to stop worrying that every bitcoin transaction promotes some kind of terrorist activity, which it doesn’t. This migration started slowly, but it is happening faster now. The place we come to will be the tokenization of everything, and that will be catalyzed when central banks understand that. In her inaugural speech, Christine Lagard (President of the European Central Bank) spent 15 minutes talking about stablecoins. If everyone has a digital wallet and CBDCs, which aren’t backed by anything anyway, are in order, then all of a sudden bitcoin looks great. It will take on the role that gold played in regards to legacy silver, and all other digital assets will be put in place. The middle layer, the service layer, will become much more automated, technological and democratic, and the terminal layer will become a real struggle.

Forbes: Do you think what you’re doing is in direct competition with commercial banks in general?

Mastery: I think I would flatter myself at this point to say that. But really, when I see things on a regular basis, like Compound Finance, a decentralized peer-to-peer lender with $ 1 billion in assets under management, you have to be careful. There are so many brilliant innovations going on. Today, borrowing and lending can be done seamlessly, remotely and autonomously on the chain. It’s much better than doing it with Citigroup. It means something. It’s Netflix at Blockbuster, it’s just Blockbuster hasn’t figured out what Netflix is ​​doing yet.

Forbes: Thanks for your time.

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