Can you crack the crypto code? Can data predict the market? We catch up with the founder and CEO of Coin Metrics Tim Rice to find out what the data is telling us and how to use this information. Does having a blockchain node in your office really give you inside intel?
Walter Jennings: Today in the Finoverse, we're going on a hunt for a crystal ball. Well, actually, a crystal ball made up of millions of lines of dots, dashes and numbers, you guessed it, data. Could this be the key to success? Can data help you make predictions and forecasts more accurately? Joining us today is Tim Rice, CEO of Coin Metrics, the company that gives institutional investors the heads up through crypto financial intelligence. So I kicked off by asking him, what is the potential for blockchain?
Tim Rice: I find crypto like super enabling across and have a real long term vision of the opportunity. I just believe every revolution needs a number of different agents to see it along. And a longer team term, I do see some massive opportunities with where we can go with decentralised blockchain technologies and smart contracts, and what they can do to enable the world. I do think the challenge of the technology right now is the lack of good user interfaces. And when we come to the space, and we think we're going to bank the unbanked, it's like this is the most complicated way to bank anyone.
So it's funny, that's what we're trying to solve for the world. And so we're running in all these different directions across all these various assets and blockchains. And what we tried to do really well at Coin Metrics is focused on that customer journey. And so we're really well versed in the traditional financial journey into new asset classes and what they're looking for. But I think the broader view of this is, we've really got a lot of work to do, too. If your objective is to bank the unbanked and do other work in this. There's a lot of work that needs to get done and some of these unfortunate events that we can talk about slow that progress.
Walter Jennings: Yeah, well, Tim, you're bringing up a good point, because the user experience in crypto isn't the best, especially if you are just getting started. I didn't see that, you know, is Coin Metrics part of that user experience?
Tim Rice: So we're not really part of the user experience at this point. So what we're doing is kind of working at the data layer to help expose the facts that exist on these ledgers and help you observe the vibrancy and how these systems are evolving. You can trade this asset class and create value for yourself that ultimately is hopefully feeding into the ecosystems in order to enrich the developers, that are working on that content. But, again, long journey, even for what we would think are sophisticated users of content, figuring out how to enable the journey for themselves.
So that's where we're operating, where we're kind of the Rosetta Stone of this content, and trying to read it, understand it, contextualise it and serve it up so that someone where we've looked at legacy frameworks and understanding can actually translate that into what's going on from what they've been used to. And so it's kind of like meet them where they are, rather than have them do the hard work. You know, we've got a hugely enthusiastic, super talented group of young people who live, breathe and have died and not died, live and breathe this every single day. And they start with pure creativity and ingenuity, and fortunately, Coin Metrics have created value for them. And these assets create value for them to keep doing that. And so it's just been super interesting.
Walter Jennings: Well, and Tim, you had mentioned your colleagues studied the economic behaviour of public blockchains. And you actually run nodes in your office for most of the public blockchains. Can you explain what that picture provides you? What having those nodes in suit to help you with?
Tim Rice: Yeah, so running our own node infrastructure. We're kind of fickle about trust, no one else except the blockchain. And if you're going to trust the blockchain, you need to understand how to be intimate with it and run it and understand its nuance. When there's software upgrades, upgrade the software so you're running the latest versions of the software, and then we're getting very sophisticated in monitoring activities in real time.
So we think it's super important that, you know, I kind of have this argument that is like, you can get to a point where you have a calculator, but before that you needed to learn how to do addition, subtraction, and long division, right. And so I think we have that kind of core ethos here that you need to run it, read its API, watch it, make sure it's doing what you and the data is still saying what it says over long term. So we think that it's very important.
And the other thing that we think is important is, you know, in a lot of well, so for 14 years, plus now Bitcoin has been chugging along, producing a block every 10 minutes or so like it said, it was going to, if you run nodes in a cloud service provider, and the cloud goes down, bitcoins still doing what it was supposed to be doing, and you're kind of losing touch with it. And we've seen that instance, whether it's a AWS or a Cloud Flare, I mean, it's part of their business, it's not a ding on them. But Bitcoin just keeps chugging along. So we've set up infrastructure to make sure we're there when Bitcoin is there, when Ethereum is there, and it's always running, and we're on top of what's going on. And then the other thing that kind of embraces is the decentralised nature of blockchains, you're looking for participants to spread out and watch or validate, or mine on these blockchains. And we kind of embrace that core ethos about being decentralised.
And so we operate in these physical data infrastructures, in order to be part of it and participate, be involved, we think it's important for self sovereignty of the node infrastructure, where you know, there AWS East, here in the US controls, or has a lot of Ethereum being worked on that. That kind of is counterintuitive to the decentralised thinking of the blockchains, right, because you actually do have a consolidation, even though they're individual entities operating, you've got a big chunk there. So we've seen this to be hugely important when China shut down Ali cloud, we saw, and then did other things we saw, they were losing a lot of transparency and capabilities understand distribution. So we think this is the right way, it's kind of I guess OG that we do it, a lot of people just run it in clouds and performs to do what it does. But we'd like to get in tight with things and get a little bit dirty in it.
Walter Jennings: And I also understand you have the data coming out of all of the exchanges. And you're able to see trading volume, real time. I just wanted to ask you a question, in the aftermath, or in the lead up to FTX. What did you know, were you seeing unusual activity? And has there been a flight to quality amongst other exchanges? Where do the, you know, where do you see the volume that FTX used to handle winding up?
Tim Rice: Yeah, so you know, it's interesting. Because it's, when we set out we said "Okay, you need on-chain data, you need the right market data aggregated, and then you need to be able to kind of create an index solution off of it." And so studying the normal volumes of FTX, even into the weekend, where CZ and SBF started their Twitter battle, there was nothing abnormal about the volumes historically from either one of them, where you had to dig in as what was actually happening on the on-chain side of things. And that's where we didn't see anything abnormal on the exchange connections, or the volumes were similar until the event happened. But then the on-chain side was where it got really interesting.
The key thing on the flight to quality. What I think we've seen and I'm personally guilty or responsible is, I've moved many of my asset personal assets off to cold storage and my own somewhere in the world. So that flight to safety has happened from those exchanges. So people are moving their assets, either to a more secure venue, or they're moving off. And I think we're all kind of like, let's just keep our head down while the headline news is so frothy. And you know, that's the other thing the on-chain data tells us is, even though we saw some movement from one venue to cold storage, or one venue to another, what you don't see is a massive sell-off. Like we can identify whether, we could see my address and see that I've never sold since 2000. Since I bought it, like you can see from if you looked at my address, I've never done that. But my address in my view is now in a more secure venue. So I'm still a participant. And that's the beauty of these blockchains.
Walter Jennings: Now, Tim, how are you finding this data set differing from what you had been providing to similar clients, when you were using traditional data? You worked at Thomson Reuters a number of years ago. So how are you kind of, how has that knowledge helped you? And how is it not been useful at all, from traditional finance now that you're in decentralised finance?
Tim Rice: In traditional finance, if you're running a publicly traded company, you're required to disclose things on a regular basis, there's a format, a form, a rhyme and a reason for how you disclose that you want to participate in that capital market. You do need that to work. In crypto, we grew up a little bit different, right? We were going to be rebels, we were going to destroy that whole system. We were going to be decentralised. And so the challenge for our regulators is there's no one at Bitcoin, who's going to file anything, it's doing its thing. It's just running code. So and ETH is doing the same thing. And you might say, well, Vitalik and his team are there, but they're not doing or claiming the things that I would claim at IBM or Microsoft. So we need to find a good middle ground on how we do that.
We've talked about self-regulated organisations where we're working on stuff. I think the market right now for institutions like us and others, we're all getting a bit of a wake up call, like "Okay, guys, like before, we were all you know, folks are out there searching for their unicorn valuation, and all these other things and puffing their chests". And our clients, the regulated financial institutions are like "I gotta go to Chainalysis for this, and I gotta go to Fireblocks for this. And I gotta go to Coin Metrics for this." And you're making it really hard, because the bank is regulated by this regulator. And in order for you to be a vendor, you need to do X, Y, and Z. Did you know that? And, you know, so I think, we're at a turning point.
Walter Jennings: Tim, how do you keep across the 12,000 Plus coins and tokens that are out in trading at the moment? Do you have a cut off somewhere and say, no, no more, we can't handle it.
Tim Rice: Yeah, so we're fortunate. So our friends at a coin market cap set out to cover everything in crypto for all the wild and wonderful that come into crypto, we set out to provide services to regulated financial institutions. And so that allows us to kind of start to think about how we cover assets and what we need to cover. So on the exchange side, many firms in the data space will tout 400 exchanges or 300 exchanges, we do 40-ish exchanges that cover spot and derivatives. And they're the exchanges that people would work with, we do the same thing on the asset class side of things. It's like, you know, and there's even some names in there that I, Martha's friend something or other coin, I can't believe it's in there.
But I'm like, I don't even know what it is, realising that the names of clients that we would have are not going to be interested in some of this stuff. They're already speculative enough just being in Bitcoin and ETH, and so we need to supply a robust, but not exhaustive set of these assets.
Walter Jennings: Yeah, I've been in your webinar with FactSet, when you announced that partnership, I think you had mentioned that, you know, when you look at the exchanges, kind of the volume about 38% is Bitcoin and 19% Ethereum. And that gives you an 57% of the market. So, you know, if you've got those coins covered, you're not going to need the other 11,998.
Tim Rice: Yeah, exactly. Thank gosh, because, storage and data centres are expensive. And we store all of that content. And so that's a lot of content to store if you're doing 12,000 exchanges, and they're full order books, every single trade every single, that's a lot of data.
Walter Jennings: Now, Tim, you mentioned this is a time for building. And of course, you're on Waves in the Finoverse. We have a segment we call "You heard it here first." Is there anything that you want to preview that we can look forward to coming from Coin Metrics? Or what are some of the projects that are keeping you occupied at present?
Tim Rice: So where were we always thought it was going to be a thing, which is what is search look like in blockchain? And how do you start looking for search? So we created a product called ATLAS, which is basically a block explorer, but it can do multiple blockchains at a time, so you put in an address and it can give you the history of the transactions within that address. So, what we're seeing post FTX with large regulated institutions who are trying to say "Hey, what if I could have banked FTX? And they were legitimate, what disclosures what I've asked for from them."
And the thinking from them and with us is, if I could have asked them to disclose the 10 largest wallets, or the 10 largest addresses they had, then what would I watch for and this tool set allows them to watch those addresses, however, frequently, in real time, block by block to see what they're doing. And so we're having a lot of conversations, taking some tooling we created, and KPMG uses it in their audit practice. But we think what it's starting to talk through is how do we distinguish counterparty risk in order to avoid this situation if we want to do business with a counterparty, and we can ask them for transparency on these things, if they choose not to disclose that we can choose not to do business with them.
So I'm really excited about people now wanting to ask for disclosures and then how you can monitor either the size of that address or the buzzword in this space is proof of reserves like do you really have enough to do what you say you're going to do. So we're using ATLAS to work in there. And I think counterparty risk is a cool thing that we're working on with a lot of these.
Walter Jennings: Now, data is great, because it tells us what has happened, yet, we're more interested in what is going to happen. So amongst the various data sets, how do you and your customers use this to look forward?
Tim Rice: So large macro hedge funds that we engage with, do their classic thing is pattern matching, looking at historical content, studying 100 day moving averages, creating channels, seeing when they break patterns, and trying to apply technical analysis to forecast the future. You know, we have some interesting metrics that look at realised value and on-chain activity that start to sync signal and adoption pattern and a possible upward movement. Again, we're not an asset manager. So this is not an investment advice. But there's a number of things that people are looking for to find signal the forecast the future. You know, the challenge with the asset class as an investable asset right now is there's so much alpha that exists just between exchange prices of Bitcoin across exchanges, that the large hedge fund hasn't yet have to study the nuance of what's happening. So I think, you know, we've got a lot of maturity to go before, but I call the fundamental data, the on-chain data becomes important to examining what's going on.
Walter Jennings: Right, so with those differences in prices, across the exchanges, there's still arbitrage opportunity to buy low, sell high and move it around.
Tim Rice: Definitely, and you know, what I think gets people excited is we don't have T+2, T + any settlement like you're in, you're out, you've covered your arbitrage, you make a short head, you do the right thing, I think, you know, we're seeing some interesting thinking and patterns going on between stable coins, they're a euro currency stable coin against the US dollar, you know, a Euro Dollar versus a US stable coin, and the fact that that can settle quickly. Whereas the Euro US Dollar FX pairs, still taking you two days to settle. So meanwhile, you've got 48 hours of arbitrage or hedging opportunity before you settle the cash side of that trade. So you know, folks are getting really creative with what they're looking at and how they're thinking about trading the asset class.
Walter Jennings: One of the challenges I've found in communicating or speaking about this asset class, is the end of the population, the general population view this as extremely volatile and quirky. And I'm wondering, what do the volume show you about the the uptake? And are we you know... Is this truly winter based on the volumes, or are we seeing people getting back into the asset class? What are we seeing at the moment?
Tim Rice: So, you know, up until about two weeks ago, we had, you know, since FTX, we had low volatility sitting at 16,000, kind of pattering along, doing stuff that was like "Oh, great. We got the volatility out." That was a criticism of the asset class. And, you know, over the past couple of weeks, we've had a nice up-tick. I think we're up 24% or something. I don't know exactly where we are right now. But, you know, we're 23,007 - 10 as we're speaking from 16, so, you know, over the last three months, that's 14% positive return over where we were three months ago. So now people are kind of like "Oh, I gotta know, what am I? Where am I? Like, what is the volume look like underneath that?" And I think the volumes clearly haven't come back, you look at Coinbase as public disclosures on their activities in Q4 and other things from exchanges that disclose, you'll see, like their trading revenues are not where they would have been when we were at 64,000 or somewhere else. So you know, you're seeing some nice movement without a lot of jerky volatility necessarily.
And I would say we're still slightly sideways. You know, NASDAQ, I think said January was one of the biggest uptick months for NASDAQ, when you study NASDAQ is that up actually, on high volume? I don't think volumes are massive anywhere right now in the investment space. The asset class, just like everything else, you know, my egg prices here in the US and everything else, how much I have to spend is dictated by the macro tailwinds and what's signalling? So, you know, people are cautious across the board everywhere. And I think that just translates over into the investing side of crypto, where I find solace is developer activity. I'm building layer 2 and DApps and working on DeFi, people are continuing to work and progress this technology.
Walter Jennings: Build like a BAIL?
Tim Rice: Well, yeah, I was gonna say, you know, wintertime, I somehow I send light up on the scale myself. And then in spring getting ready for beach weather, I got to bring it back down.
Walter Jennings: I wanted to ask a question. We've seen waves of layoffs in the tech industry. And yet we're hearing Web3 companies building like bears. If we're kind of speaking to a tech worker who's recently kind of in between roles, what are the.. where are the opportunities in Web3? And how are you going at finding and retaining talent?
Tim Rice: So, you know, just to comment on any of the layoffs that are going on, we all got fat and happy during the previous free money regimes that we had valuations were high, hiring was easy. People were able to find good work. You know, I think where I'm seeing pockets of hiring are definitely in areas of the crypto space, there are some crypto, you know, Coinbase is clearly signal layoffs. crypto.com others have done that. You know, I think if for where we're looking at doing hiring, or I think others is, again, on the on-chain side, can you understand these new protocols? Can you translate layer2 and understand what they mean to translate data, or interact with them?
So I think if you're a tech worker in the space, and you're looking at Web3, you probably want to look at the we were discussing earlier, the horrible user experience you have with crypto, it's like that needs to be fixed to make it easier to bank the unbanked, because we're kidding ourselves when we say that like this is not easy to work with, like when we were talking about cold storage. Earlier, I took a whole Sunday morning. And I've done this before to like, oh, you know, when you send a little snippet across and make sure you didn't screw it up, and then you send more. And so I think building that user experience in the crypto category, whether you're doing at a larger institution, or you're thinking about a startup, I think that enablement is going to be really important to the next phase up.
Walter Jennings: Fantastic. And Tim, what, as CEO, what keeps you up at night?
Tim Rice: Oh, last night, I think it was a chicken sandwich too late. You know, I've always tried to enable innovation here. And innovation comes with some costs on things. And, I want to be able to get back to innovation. And I think what this is doing is thinking about how we do it smartly, efficiently, get everybody in line. But I think innovation is going to get little stymied by our fiscal conservatism across the world. So I'm hopeful that we get through this phase, we get to bring people back, engage and really go at it hard for the future.
Walter Jennings: Tim, we have a segment on Waves in the Finoverse, where we asked people to think about the music that would power them on their journeys, and that's tracks in the Finoverse. And if you go to Spotify, we actually have a playlist. We've had everything from Bach to Baby Sharks. So, Tim, we'd like your contribution to tracks in the Finoverse. Do you have music that would power your journey?
Tim Rice: Yes, Jimi Hendrix all along the Watchtower.
Walter Jennings: Oh man. Wow, that is a phenomenal song.
Tim Rice: So I don't know if that's showing my age or whatever but it's about the Watchtower. It's about watching out what's going on and seeing the transparency and ecosystem.