January 30, 2020

Episode 83: Michael Sonnenshein: Bitcoin vs. Gold: Digital Currencies as an Asset Class

January 30, 2020

The last ten years have seen so much said and done in the cryptocurrency space, and yet the future of bitcoin is still somewhat unclear. For Michael Sonnenshein however, bitcoin and the crypto market still offer the freedom and possibilities that have long been espoused as their greatest values. He joins us today to talk about his role at Grayscale Investments, how Grayscale fits into the larger Digital Currency Group family and how he envisions the wide-open future possibilities for bitcoin. We discuss some basics for the bitcoin conversation and Michael does a sterling job of setting out the lay of the land at present. From there, we turn to the role of Grayscale in dealing with bitcoin which can also be bought directly. Michael then takes the opportunity to compare bitcoin and gold; showing how they overlap and then bitcoin improves on the benefits that gold investments have historically provided. The last part of the conversation is spent addressing the safety of bitcoin and how time is showing its resistance to shocks and is earning bitcoin its place among other highly trusted assets. For all this and more fascinating insights into a big part of the future, join us on the Rational Reminder today!

Key Points From This Episode:

Michael's description of Digital Currency Group. [0:03:28.4]
A basic explanation of bitcoin and what defines a digital currency. [0:08:09.2]
What will happen when the maximum amount of bitcoin has been mined? [0:11:29.0]
Affecting the value of bitcoin through the altering of its decimal places. [0:14:04.2]
The usefulness of Grayscale when it is possible to buy bitcoin directly. [0:15:21.4]
How bitcoin differs from and improves on gold investments. [0:19:11.7]
How digital currency fits in portfolio management and who it really suits. [0:21:30.0]
Thinking about the expected returns question in regards to digital currencies. [0:23:30.3]
The high amount of institutional investments through Grayscale and deciding on allocation. [0:29:00.5]
Bitcoin's response to shocks and its rising reputation as a place of safety. [0:33:36.7]
Why Michael is worried by impatience in regards to digital currencies. [0:34:42.5]
How bitcoin can impact under-resourced populations through it non-reliance on infrastructure. [0:36:49.3]
How Michael defines success for Grayscale and himself moving forward. [0:39:07.0]

Read the Transcript:

So to set the stage, can you describe the Digital Currency Group, which is the parent company of Grayscale Investments?

Absolutely. So Digital Currency Group is a C-corp based here in New York and DCG, otherwise known as Digital Currency Group, their mission is to accelerate the development of a better financial system, primarily through blockchain technologies and digital currency. And DCG looks to a lot of different companies, be it Berkshire Hathaway, SoftBank, IAC, really any of these kinds of conglomerate organizations that can allow for them to serve as a proxy for an ecosystem. And certainly in DCG's case, that's the digital currency ecosystem.

DCG has, I would say three different verticals that it operates in. So the first is that it makes quite a bit of venture capital investments. It's probably the most prolific VC in the broadly defined digital currency ecosystem. And now has about 150 portfolio companies in over 35 countries around the world, which gives the company really good insight into how digital currency is evolving on a global level.

I think the second sleeve under DCG is investments in digital currencies themselves. And so it has quite a few long-term buy and hold positions, which are primarily invested in assets like Bitcoin, Ethereum Classic, Zcash, assets like Horizon and Mana, and then a variety of smaller positions as well. But we are not active traders and DCG is again making long-term convictions around these assets and their ultimate success. And then the third bucket is wholly owned subsidiaries under the DCG umbrella.

So the first is a company called CoinDesk, which DCG acquired a few years ago. CoinDesk or coindesk.com is the leading news research and events business for the digital currency ecosystem and is a really good educational resource for folks wanting to stay abreast of what's happening within the digital currency space. The second subsidiary is a company called Genesis. Genesis is one of the largest over-the-counter trading, borrowing, and lending desks for digital currency. And they're regulated as a broker dealer and they are probably one of the most active over the counter desks in the US.

The third business is Grayscale, which is the business that I help run for DCG day-to-day, which is our asset management business. And we can certainly talk more about Grayscale in the family of investment products that it allows investors to participate in to get digital currency exposure. But today Grayscale is the largest digital currency asset manager globally, and has about two and a half billion dollars of assets under management. So if you look at the sum of the parts, DCG really has its hand in a little bit of everything, and again, wants to really accelerate the development of a better financial system.

Would it be fair to draw a comparison between DCG and say BlackRock and then maybe Grayscale as like iShares? Is that a fair comparison?

It's possible. I mean, I certainly think when we think about having set up Grayscale the way that we have with a family of investment products, which are again, all access products. We definitely look at businesses like iShares or WisdomTree or PIMCO. Each of whom have certainly created a family of products for access to a certain subset of the investing universe. And they've each done that for emerging markets or for bonds or whatever it may be and certainly at Grayscale, we're doing that around digital currency.

And so the Grayscale products, would it again, I'm going to try and draw a comparison. You can tell me if it's fair. Would it make sense to describe the products that Grayscale has on the market as like digital currency index funds? Is that what they are?

I would call them digital currency access products. So the family of products consists as the following. We have nine single currency products. So each of those products is solely and passively invested in a single digital asset. So we had products for Bitcoin, a product for Ethereum, a product for XRP and so on and so forth. So we have nine single currency products.

The 10th product that Grayscale manages is called our Digital Large Cap Fund, which is a market cap weighted basket of the top digital currencies. And so I would say that the family of products, all being passive beta exposure to the asset class, we really like to think of them as access products and again, serving everyone from individual investors all the way to institutions.

So can we go back to basics, Michael, can you explain what a digital currency is? I know Bitcoin gained a lot of popularity in the huge rise in price back in 2017, but at the very basic level, how do you explain what it is?

Sure. I think Bitcoin is probably the best way to attack that question. You know, Bitcoin is certainly the most well-known and probably the longest running digital currency that exists today. Bitcoin is an intangible asset that was born out of the white paper that was written in 2008. And it called for the creation of a peer to peer non-government backed, non-central bank backed asset that would allow individuals be them trusted or untrusted or known or unknown to one another, to be able to transact in a trusted way without any intermediary.

And so what Bitcoin has become as a result of that white paper is essentially software. It is open source software that was floated out onto the internet in 2008 and has since gained in popularity. And what really underpins Bitcoin is some very, very fundamental basics that have not changed about Bitcoin despite the fact that it is an open source protocol. And so what that means is that Bitcoin are held in what are referred to as digital wallets, where individuals and entities holding Bitcoin are not going to be sharing their name or email address or bank account or routing number. The way that you would be for maybe a traditional financial product, but rather representing themselves with a string of alphanumerics that allows two different individuals or entities to send Bitcoin from one to another.

And the reason that they're able to do so is because there's an underlying ledger beneath Bitcoin called a blockchain, which has become quite a buzzword that allows for the transactions to be independently verified, such that the sender and receiver know the source of the assets where they've been historically and where they will be on a go-forward basis. Almost like the same way you'd see a series of credits and debits in your checking account.

And so Bitcoin is a verifiably scarce asset, meaning that there were no Bitcoin when the protocol was first created and there will only ever be 21 million Bitcoin ever put into existence. And so that brings up a very interesting topic around Bitcoin, which is how are those transactions governed? And that's really through a process called Bitcoin mining. So, whereas traditional payment systems use intermediaries, whether it's a credit card company or a merchant processor, when someone sends Bitcoin from one individual to another, they're actually tasking computers all over the world that have the Bitcoin blockchain ledger downloaded onto them to verify the transaction.

And so as a result of serving in that capacity of processing transactions and approving them, those Bitcoin miners receive freshly minted Bitcoin. And so what you really have here is this ingenious system of checks and balances that not only keeps the network secure, but also allows additional Bitcoin to come into circulation on a pre-prescribed basis that allows Bitcoin to be a verifiably scarce asset and an asset that's super transparent and super verifiable for all users that are involved with it.

Interesting. On the mining topic, so we know there's a finite number of Bitcoin that can exist. What happens when they're all mined?

It's a great question. So the Bitcoin protocol today has introduced about 18 million out of the 21 million Bitcoin into circulation. And because we can predictably determine the supply rate at today's point in time, tomorrow's point in time, years out into the future, we know that we won't mind the 21 million Bitcoin until approximately the year 2140. Now, unfortunately I don't mean to sound morose, but good chance that none of us are going to be around when we get to that date. That being said, we do hope that Bitcoin is still thriving and growing and being used.

And so miners can continue to serve in their capacity of approving transactions, but it will most likely come in the form of transaction fees that are being tacked on to a transaction by the sender in order to make it attractive for a miner to confirm the transaction that's taking place and have them have an economic incentive to do so.

You mentioned verifiable scarcity, but if Bitcoin is infinitely divisible, which I think it is like nobody's using a Bitcoin to buy something today, right? Because they're too high in value. So if it's infinitely divisible, can it really be scarce? Like as long as the value goes up, does the number of Bitcoin that exists even matter?

Well, so Bitcoin is verifiably scarce based on the supply rate. And the divisibility factor today is actually shown out to the eighth decimal place, such that there are a hundred million units within each Bitcoin. And so I don't think that that has not historically been something that has been changed around the Bitcoin protocol, nor do I think that the visibility going out beyond the eight decimal places is something that we are looking to, or there are any kind of proposed changes to alter that anytime in the near future.

I think what's more important to look at around Bitcoin's divisibility is the fact that being able to represent an economic asset or a real money asset in such a divisible form actually lends itself to a lot of different applications that are not otherwise possible through the traditional financial system. You can send somebody one, 1,000,000th of a penny as compensation for opening an email or making a micro loan or whatever it may be. And so I think that there's a lot of new use cases that Bitcoin lends itself to as a result of its divisibility.

It's fascinating. And I don't know who would make this decision. Maybe you can explain that too, but if the decision were made to move out more decimal places, could that affect the value of the asset?

It certainly could and it's important to again, go back to this notion of open source. So what open source means for everyone listening to this is that the protocol or the software itself is not fixed. So if anyone is using an operating system for their computer or their phone, and they see that there are new changes, then you're being prompted to download the newest version of it. Well, the same type or analogous type of software upgrades are made to Bitcoin rather than there being a corporation that's pushing out those updates, the way that there might be for your phone or your computer when it comes to Bitcoin.

Because it's open source, there are constantly developers all over the world, testing the protocol, making changes, contributing those changes, and what you're instead seeing is miners and participants in the Bitcoin ecosystem, giving their vote of confidence in the latest software changes by downloading the newest version of the Bitcoin client. So it is quite a democratized system of how changes get implemented. And certainly again, not subject to any one single entity or individual, the way that you might see that in a more traditional sense.

So Michael, why would someone who wants exposure to this asset class go through Grayscale as opposed to just buying the digital currency themselves on their own?

That's a really great question. So I think the best analogy is to look at other areas of the investible universe and see why investors are sometimes both buying assets directly, and then also sometimes using financial instruments to get that same exposure. So a really good analogy would be something like gold, where an investor could certainly go and find a gold broker, buy physical gold to determine an appropriate warehouse and security and safety mechanism to house it, whether they did it themselves or farmed it out to a third party, or they could certainly buy no shortage of gold instruments or financial instruments that are invested in gold or gold companies.

And so similar to that, investors can certainly now see a thriving ecosystem of companies that offer services that allow them to buy digital currencies directly. However, unlike something like gold, when it comes to something like a Bitcoin, you not only not need to be able to vet where you're actually buying Bitcoin, but who that appropriate counterparty is for you and be it an exchange or a wallet provider, but then you will also need to have the technological know-how to be able to move the Bitcoin to a wallet, be able to keep your password secure, and be able to safe keep it on a long-term basis.

And for most investors, that is a new and unfamiliar experience, and it also takes the capital or that investment away from the traditional brokerage account or retirement account or investment account where they're typically used to seeing exposure to various assets. And so I think the Grayscale family of products really addresses some of those challenges where investors can gain exposure to digital currency, but they don't need to figure out where to buy it, how to transfer it, how to hold it, or how to safe keep it.

And the Grayscale products instead give investors a security that has a CUSIP and an ISIN, and that gets audited and produces financial statements and tax documents and risk disclosures offering memorandums. And so most investors are leveraging the Grayscale family of products because they're now able to gain exposure to a nascent or unfamiliar asset and do so in a way that feels super traditional or more akin to their experiences with investing in other financial instruments.

Well, there was a great example of that this week in a tweet from Peter Schiff, the investor. I'm sure you saw the tweet.

He said, "I just lost all the Bitcoin I've ever owned. My wallet got corrupted somehow and my password is no longer valid. So now not only is my Bitcoin intrinsically worthless, it has no market value either." He goes on to say, "I knew owning Bitcoin was a bad idea. I just never realized it was this bad."

So that's a prime example of perhaps an investor who took on some ownership of Bitcoin and maybe didn't properly secure or store their password. And so again, being the type of push system and decentralized system that it is, when you lose access to something like that, in Peter's case, you are actually not going to have a 1800 number to call or a company that you can put a contact us ticket into to reset that password for you. These are bearer assets. And so again, if you don't have the technological know-how to be able to do that, short or long-term, that's why we're seeing a lot of investors turn to the Grayscale family of products in order to get that exposure.

So you drew some comparison to gold and Peter Schiff would be a gold investing advocate. But if we say that they're similar because of things like scarcity and supposed immunity to central bank manipulation, how do you think Bitcoin is different from gold? If someone wants to use it for those purposes?

So I would actually say that Bitcoin and gold do share a lot of overlapping attributes. If you guys were following Grayscale's 2019 advertising campaign, we had a national ad campaign called #DropGold, really looking at the investor community and giving them a call to action to say, what constitutes a store of value? Does gold still fit in with the now digital world that we are certainly living in and thriving in? Was it perhaps the right store of value or inflation hedge for the physical world that seems to be fading into the distance every day that passes?

And that's a narrative that has really resonated with our investors and the investment community as a whole. And so I think that Bitcoin and gold, again, share a lot of overlapping attributes. A lot of which we've been able to memorialize on a campaign website called dropgold.com current people to check it out tons of educational resources on there. But I think where you actually start to see Bitcoin out shine gold is really related to Bitcoin's divisibility where you actually have many more units that you're able to create within a Bitcoin than you are going from a gold bar down to a troy ounce to a coin, whatever it may be.

Certainly with portability, we can send Bitcoin anywhere in the world instantaneously and virtually for free, whereas that can be a super cumbersome experience physically with gold, not to mention very expensive. And then I think finally on utility. Bitcoin lends itself to amazing applications. Most which we barely scratched the surface on, whereas gold has really become an asset that's primarily held by central banks and governments, and has very limited utility outside of areas like sometimes using electronics or dentistry or other areas such as that. So that's really where I think a lot of the differences are being drawn out.

From a portfolio management perspective Michael, Ben and I take the view that assets in that portfolio should have some sort of positive expect to return, which in the past is precluded us from adding in things like Fiat currencies and gold, for example, into portfolios. How do you think about the role of digital currencies in portfolio management?

We think and we'll be the first to say that investing in or having exposure to digital currency is certainly not for everyone. What we would instead say is that if you are not at least considering digital currency as part of your portfolio allocation, whether you manage your own investments or work with a financial advisor, you are doing yourself a disservice. This has become a bonafide asset class that has unique characteristics and has demonstrated for the most part it's uncorrelated nature to other traditional parts of the investing universe.

And if diversification is what most investors are seeking such that their portfolios can weather downturns in the market, economic shocks or other events that may impact their investments, then you most certainly want to be considering other alternatives like digital currencies. And so, again, we're not saying that it is for everyone because digital currencies are volatile. They're early in their life cycle and we do however, think that they offer a really unique risk reward scenario.

And there's empirical data now that suggests that adding even just 1% of your portfolio to digital currencies can actually enhance your risk adjusted returns. So it's something for folks to consider, but definitely not for everyone. Depends on your investing goals, risk tolerance and time horizon.

So lower negative correlations are super important for portfolio assets. The other piece that Cameron mentioned is expected returns, which is equally important. Even if you have an asset with low or no correlation, but terrible expected returns, it may not be a good addition to a portfolio. So based on that, how do you think about... maybe I'll just back up. For a normal currency like US dollar or even for gold, it's really hard to attribute any positive expected return. Maybe no positive expected real return. Maybe it keeps pace with inflation, at least in the case of gold, not Fiat currencies. So for digital currencies, how do you think about expected returns?

I think that we look at certain areas where digital currency has already started to create disruption or changed investor mindsets, gold being one of them. And so if you look at the market cap of gold today, you look at the market cap of Bitcoin, you perhaps make a probability that Bitcoin takes 1% or maybe 5% of the investible market for gold over some time horizon. The numbers that you attribute where a Bitcoin is today, about $8,500 to what it could be if that comes to fruition in a silo, right?

If Bitcoin becomes nothing other than a digital store of value and take share of the gold market, you're talking about a risk reward scenario that's pretty hard to find in almost any other asset. And you can do the same kind of probability and mathematics around Bitcoin taking share of the remittance market or how much money is moving around the world every day through Euroclear and the Fedwire system. And it's pretty much an asset that you can compare to taking share of or creating efficiencies or savings in almost any vertical.

And that's, I think, a really healthy and pragmatic way to think about what its ultimate value could be. I do think, however, it's worth noting that we're already seeing a lot of this shift happening and so it's super topical important that investors are educated on the asset and are considering it. One thing that I think the Grayscale team is certainly looking at is this generational wealth shift. And so here in the US over the next 25 years, we're going to see about $68 trillion pass from the baby boomer and older generations down to millennials and younger generations.

And so I'm going to be very clear here and say that we're certainly not making the claim that $68 trillion is going to move into Bitcoin and digital currency, but we are going to say that we need to pay attention to how those assets are currently postured and invested today, and think about as that money passes to a younger generation, how are they going to allocate or reallocate that money and what types of investments resonate with those younger audiences? And so I think that that is a really important narrative and a really important area for investors to be thinking about. And in fact, we're already seeing that Bitcoin is something that generates with a younger audience.

So Charles Schwab, which you guys know is a humongous provider of investment accounts recently published a report as to what the top 10 equity holdings were for a couple of different generations of investors that have accounts on their platform. And there was a lot of actually overlap between older generations and younger generations having exposure to companies like Apple and Amazon and things like that.

But what was super surprising and very important to note is that the millennial set of investors at Schwab, the fifth most held security in their accounts was actually the Grayscale Bitcoin Trust. And so that is, again a really important data point that's already showing that this younger demographic is really excited about and is already making investments and allocations towards Bitcoin.

And Bitcoin is still not something we can use to buy groceries yet, I believe, right?

Well, I think that near term use cases, certainly in the developed world are mostly around using Bitcoin as an investment and/or a speculative asset because we already have in the developed world so much access to financial services, credit cards, lending, banking, money transmittal, et cetera. I think where we're seeing more adoption, maybe in a more consumer sense the way that you're referencing is certainly in the developing world where local Fiat currencies are experiencing inflation or debasement in where those individuals living there are often outside of the banking or financial services world.

And so I think there you're seeing more adoption. So we're talking about places like Argentina and Venezuela, which again, it's for a lot of individuals, a much more pragmatic and perhaps safer approach to own other assets outside of their local currency than it would be to trust and put their faith in that local currency because of how it's being treated.

But how important is it to the ultimate value of digital currencies is the consumer adoption of Bitcoin for example.

It's really tough to say. Again, if you run the mathematics and probabilities around, even if Bitcoin becomes nothing more than a store of value and takes meaningful share of the gold market, you could be relatively certain that there's probably a lot more catalysts that would cause Bitcoin to double or triple in value from where it is today versus what it would take to see gold or other historical or antiquated stores of value double or triple from where they are today. And that's, again, just looking at one individual use case for Bitcoin, where again, I would say that we haven't even scratched the surface or even thought of the various ways that it could be utilized.

I think that's my biggest takeaway from what you were just saying is that even if we agree that Bitcoin's a speculative asset and it doesn't have a traditional positive expected return in the way that stocks do, there are so many use cases, many of which we don't even know about yet. And so we're speculating on... It's like diversified speculation. We're not speculating on one thing happening.

I read when your 2019 report came out, that a lot of the assets that came into Grayscale last year were institutional, is that correct?

It was. Over 70% of the assets we raised into our family of products last year came from institutional investors.

Unbelievable. Do you have a sense for how the institution or clients that you have are using it? Are they using it as a speculative asset or buy and hold?

I think it depends. We're certainly hearing from some investors that they're using this as again, an uncorrelated return stream and that's diversifying their exposure. I think we're hearing from other investors that they're excited about Bitcoin, maybe through a global macro lens where this is perhaps a way to get almost short Fiat currency or expressive view on that.

We're hearing from other more event driven or momentum or tech investors that there's a lot of attributes within this asset class that resonate with them and their investing strategy. So I think it's coming from a variety of different investor types and strategies. And that continues to be an area where we've not only seen a lot of momentum, but it's actually increasing throughout 2019 and now into this new year.

So going back to Ben's comment about diversified speculation, how does an investor decide which coin or coins to allocate some of their assets to?

I think we're seeing still most investors first foray into digital assets being in Bitcoin, probably being the reason that it's the asset that's overcome the most adversity been called dead, no shorter than probably 100 times over the last 10 years and an asset around which investors probably have the most resources available to them to make an informed investing decision. But I'd also note that I think it's about 35% or more of our investors have now allocated to more than one product within the Grayscale family.

Meaning that they now have exposure to another asset besides Bitcoin or multiple assets besides Bitcoin. And so investors are also increasingly seeing not just the diversification benefits of having Bitcoin in their portfolio, but even added benefits of having exposure to multiple digital assets.

Is there a way though, to look at different digital assets and say, "This one is good." Like, what would that even mean? If I'm deciding between Bitcoin, we know it exists and it's commonly maybe not understood, but people at least know that it exists. So maybe they invest in that one, but if you're evaluating two different digital currencies, is there a way to say there's a better chance this one's going to be more successful?

I think it's too early to say. I think a lot of the belief that we have in the digital currency ecosystem is such that eventually the ecosystem will shrink down and there'll be maybe 10 or so digital assets that each thrive as peers with different addressable markets and use cases and prices. And we sometimes look almost at the precious metals family where assets like gold, silver, platinum, et cetera, each exist alongside one another as part of the precious metals cohort, but they each have different use cases, prices, addressable markets, et cetera.

And so I think that the question you're asking is super topical and one that we've fielded from quite a few investors, which led us to create one of the products that we actually now offer, which is our Digital Large Cap Fund. And so a lot of investors were saying, maybe I should invest in Bitcoin, or maybe I missed it, or maybe I should invest in Ethereum, or maybe I missed that.

And so to address some of those challenges, we created a product that instead of having exposure to one digital asset, gave investors the opportunity to make a single investment and with that gain exposure to about 70% of the digital currency ecosystem and hold those assets on a market cap weighted basis and then quarterly include and exclude certain assets from the fund.

And so that fund is oftentimes being used by allocators and investors who want broad exposure to the asset class, but know that they're not probably going to be best positioned to pick winners and avoid losers.

Makes a lot of sense. I mean, diversification is, I guess, obvious in any investing regime. One of the things that we've talked about is the low correlation of digital currencies with traditional assets like stocks, which make digital currencies interesting in portfolios. But one of the challenges that I have anyway in thinking through that is that we have extremely limited data set for digital currency. So how do you address that? How do you think about that? If we're evaluating these assets with what do we have? 13 years for Bitcoin or less, 12 years?

I think that we're evaluating them in the wake of a lot of different events that have transpired. So one area that our team has certainly looked into and published on is looking at assets like Bitcoin and its performance in the wake of shocks. So we looked at how Bitcoin outperformed in the wake of Gregxit and the Brexit announcement and tightening financial conditions in the US around the 2016 election. Once again, most recently seeing Bitcoin outperform in the wake of what was transpiring in Iran over the last couple of weeks.

And so I think that we're starting to see certainly empirical data from the investment community, that they are looking to assets like bonds and gold, and now Bitcoin, as flights to safety and the areas where they should be moving assets to when they do see or experience shocks to the system.

Interesting. We talked briefly earlier about the Peter Schiff incident and security of digital currencies in general, other than that, so forget about the fact that you can lose the asset because it's a decentralized system. Other than that, is there anything that worries you about digital currency?

There is one thing that I would say persistently worries me, which is impatience. I would say that we have seen so much development, human capital, actual capital around this asset class develop in a very meaningful way over it's 10 plus year lifespan. And there's some tau is still this persistent question of why isn't there more capital or why isn't there more individuals or companies using some of these assets in some of the ways that I think we would traditionally think they would for a currency or other payment systems?

And I actually take the opposite view and say that the fact that we now have a very vibrant and growing derivatives market, we have futures and options on futures around assets like Bitcoin. We have world-class companies being built all over the world that are developing and attracting tremendous talent at them. We're seeing participation from legacy financial institutions like Fidelity and the CME Group, and starting to see even newer companies like Square and Robinhood and others that offer products and services around this asset class. Seeing how regulators opine in a very meaningful way around this asset class. Be it the SEC, the CFTC, the treasury, the IRS, foreign regulators as well.

There's actually probably never been something that has come out of nowhere and gained the type of traction that digital currencies and this as an asset class, as a whole have ever done before. And so I sometimes worry or get frustrated that there will be impatience that folks think that there has not been enough progress made, and we feel that so much progress is being made. It's moving at lightning speed. And again, I think we've only scratched the surface on ultimately where digital currencies will fit within our universe.

That's absolutely fascinating. Now, can you bridge that to how digital currencies are going to benefit society as a whole on the other side?

Yeah, I think one of the aha moments, if you will, that I had when I got into the digital currency space in 2014 was really thinking about digital currencies being the springboard to financial inclusion. So half the world's adult population today does not have access to financial services and that excludes them from saving money, getting a loan to finance a business, or an education, passing money to the next generation, whatever it may be. And again, that gets further impacted in negative way, if they happen to live in a place where their local currency is being inflated out of existence or is being debased.

And so if you think about the way that cellular technology, cell phones, landed in a lot of different areas in the developing world where there was never the infrastructure for landlines, and suddenly we put up towers and gave people these little plastic phones and everyone was suddenly talking to another and was connected for the first time. You could draw that same kind of analogy, how digital currencies could allow half the world's adults to basically leapfrog the lack of infrastructure that is not there today for them to participate in the financial services ecosystem and instead, really just move directly into digital currencies because now all of those individuals have cell phones.

They don't necessarily need to be flashy smartphone, even with a simple feature phone, you are seeing the development and adoption in the developing world of individuals using even just a basic feature phone to SMS Bitcoin from one person to another. And so I think that that is transformational to about half the world's population, much the same way that the connectedness that has been created cell phones was also transformational. So those are the types of things that we're very excited about.

Absolutely. So I know we didn't talk much about your personal story today, but I've read about it and you risked a traditional finance career and your reputation to jump into the digital currency space before it was anywhere near its current level of maturity. So that's a big risk and it seems like it's paying off. When you think about Grayscale that you're continuing to build, how do you define success for it as an entity?

I appreciate the sentiment. Getting into the digital currency space. Six plus years ago, it has certainly developed in meaningful ways since then and it certainly was a risk. I think defining success is really thinking about Grayscale as a sum of the parts. So being a relatively small team based here in New York, I can say that the team that we have built here and the culture that we have built on this team is a group of forward-thinking, hardworking individuals that are certainly the best people for the seats that they each occupy on the team.

And that's everyone from the folks that do our marketing and comms, to our legal folks, to our sales folks, our accounting folks, and everyone in between. And I think what we're able to accomplish as a team has been tremendous and we're really looking to take that momentum into 2020, really continuing to, as a cohort, focus on continuing to raise assets and continuing to serve investors in a way that's compliant and feels familiar to them and continues to draw more capital into this space. And again, really continuing to focus on building our brand and building out the team in a very thoughtful and methodical way. And so I'm super excited about our team and its composition and moving into 2020.

So with that, how do you define success in your own life given this journey you've been on?

Well, I think I'd be a little more successful if I had a little more work-life balance, if I'm being completely honest here. But I think how much time and energy I'm personally pouring into Grayscale has really been emphatic and has seen a lot of other folks glom on to that.

We are so excited to be building the company that we are being able to really run all over the world, educating some of the most storied investors around a nascent asset class that's often misunderstood and really taking that burden on as a team to ensure that we have digital currency be positioned best for its ultimate success by being that educational resource for the investment community and making sure that we're debunking any of those preconceived notions so that if Bitcoin and digital assets as a whole continue to thrive, they do so through the lens that people have really unpacked it and really spent the time to dig in and learn about it.