Speaker 1:
From the library of the New York Stock Exchange, at the corner of Wall and Broad Streets in New York City, you're Inside the ICE House. Our podcast from Intercontinental Exchange on markets, leadership and vision in global business. The dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week, we feature stories of those who hatch plans, create jobs and harness the engine of capitalism, right here, right now at the NYSE and at ICE's 12 exchanges and six clearing houses around the world. And now, welcome Inside the ICE House. Here's your host, Josh King of Intercontinental Exchange.
Josh King:
On December 17th, 2017, the price of one Bitcoin reached its record high of $19,783.21. All eyes were glued to the cryptocurrency and for good reason, but just shy of a year later, Bitcoin is still making headlines. The tune is much different now. This week, Bitcoin traded below $4,000, marking one of the worst selloffs on record for the currency. The bears didn't stop the biggest movers and shakers driving the cryptocurrency industry from meeting in New York for CoinDesk's 2018 Consensus: Invest conference, to discuss and debate trends and investment opportunities surrounding digital assets, including Intercontinental Exchange's Chairman and CEO Jeff Sprecher and Bakkt CEO Kelly Loeffler, who spoke on the panel, Institutionalizing Crypto: Bakkt and the Race to Win Wall Street.
Josh King:
Joining us in the ICE House today is Crypto Journalist Frank Chaparro, who's been chasing the rise and fall of cryptocurrency. First at Business Insider, where he covered financial markets, specifically cryptocurrency, equity market structure, and digital wealth management. And now, as senior correspondent at The Block, a global community for crypto enthusiasts. We'll get his take on Consensus: Invest, and the state of cryptocurrency, right after this.
Speaker 3:
We began with a vision to transform energy trading through technology, creating a modern accessible market place and leveled the playing field and drove transparency. Today, Intercontinental Exchange operates markets around the world. We provide data people rely on, and connect participants to support investing, trading, hedging and capital raising, driving the world forward. Well functioning markets play a critical role in advancing economies, and create opportunities for those who build them. And we innovate to ensure our markets serve the world every step of the way. When you turn on the light switch, we help ensure that energy is priced efficiently. From fields to your cup each day, from farms to your table, and products that enable financial opportunity. At Intercontinental Exchange, we build, operate and advance global financial and commodity markets. It starts here.
Josh King:
Our guest today, Frank Chaparro joined Business Insider fresh out of Fordham University. And at BI, reported on the intersection of digital assets and Wall Street market structure and financial technology. In September, he announced he was joining The Block, a cryptocurrency digital assets community with its sites set on becoming the go-to news source for blockchain and crypto news. Frank is charged with overseeing editorial content and has broken a wide range of stories in a very short time. Recently, he's been tracking the crypto bear market and is fresh off of his reporting from Consensus: Invest. Frank, welcome to the ICE House.
Frank Chaparro:
Hey, thanks so much.
Josh King:
Good to be back here in the building. This is a place that you reported on and broke a lot of stories yourself.
Frank Chaparro:
I have, and it's nice to be here during the holiday season. I don't think I ever have seen such beautiful decor.
Josh King:
It's been a wild couple of weeks for crypto and even more so for you covering Consensus: Invest in Manhattan. What was the general feeling that you took away from the event? I was there were just the morning sessions, but you covered it all day long.
Frank Chaparro:
I mean, it's a lot different from Consensus: Invest last year, while this thing was going up to 10,000. I think Bloomberg had a funny story out the day after, where it basically said, "It's not about lambos anymore, like it was..." I think last year they had four lambos parked outside the hotel. It's a totally different environment. And the focus is less on making money and a 100x returns, and more on really, really boring market structure stuff. The type of topics and conversations that are not unfamiliar to the hallowed halls of ICE or New York Stock Exchange.
Frank Chaparro:
Instead of talking about making money, it's more about building things like smart order routing algos, over-the-counter training desks. A year ago, those wonky, specific, esoteric, pedantic things were not the focus, and now they seem to be. That's not to say that Wall Street wasn't involved a year ago, but it was definitely less technical. Now, there's a better understanding that in order to get capital into this market, there's a lot of things that need to be done, a lot of things that Bakkt is looking to do. And until then, you're going to continue to see wariness on the part of large institutions.
Josh King:
I've read so many stories over the past year about the environment in Switzerland, which is home to so much of cryptocurrency activity, and the sort of trademark car of a person in this space, being a Lamborghini. You think that's all changed or some of it.
Frank Chaparro:
No, I think some of it has changed, or the focus has certainly changed. There's still some of that, but I think the space has done a lot of growing up over the last year. And the big boys and gals in the room know that, that's not what we should be paying too much attention to.
Josh King:
Whether it was at Business Insider or now at The Block, just roll the time clock back a little bit to a year or a year-and-a-half or two years. And some of the crazier stuff that you saw in the space before, as you say, the big boys and girls entered the room.
Frank Chaparro:
When you have unconstrained amounts of money from doing a fundraise that takes seconds or minutes. I mean, I remember interviewing a CEO who was just beside himself that, "This was the easiest thing I've ever done. It just took a matter of minutes to raise 15, $30 million." And you kind of don't really have a product or a business model. And you're maybe like in your 20s, that's going to translate into a lot of interesting activities, to say the least. That was the bubble, that was the hype cycle, that was the top. That's not happening so much anymore, a lot of folks in the space aren't paying attention to that anymore, and it's not really happening. And they're looking at, how can we build actual products to get Wall Street in, to get investors comfortable with this market? A year ago, it was a much different story.
Josh King:
Now onto this year, Frank, just as telling as the insights and opinions that get discussed on the panels on the main stage that's designed for public consumption. Are the conversations you hear by some of the leaders when the lights are off, and you're by the coffee urn or in the hallways and sides around these conferences. What's some of the quieter chatter that you picked up?
Frank Chaparro:
I think the most interesting thing is the people, folks like Sam Tegel, who was at Jump, going to a cryptocurrency exchange out in Chicago. People who have joined Kraken from Jump Trading, a guy named Steve Hunt. There was a guy who left IEX to join a cryptocurrency firm called CoinList. And it goes on and on. And I think you have all these folks from the electronic trading world joining the cryptocurrency world, there's like a reunion of sorts. So that's been interesting to see these folks who 20 years ago were building out the framework and the foundation for electronic stock trading, now 20 years later, a little bit older, a little bit more gray doing the same thing in crypto. And so I think a lot of people are noticing that and find it funny.
Josh King:
A reunion of sorts, you mentioned. The people who were once brown haired and are now graying at the temples. I look at the Twitter feed of you and others at The Block. And you break a story, you publish news about a person going from traditional world into crypto. Emotions and tensions, and feelings are pretty raw and get pretty excited when Chaparro breaks a piece on guy, girl, going to a new firm and they push back pretty hard. But you have to have pretty thick skin when you break a piece of news like that.
Frank Chaparro:
People love when we break stories about Wall Street is joining the crypto world, that's something that they really enjoy. They eat up, they think it proves the thesis that this is the future. It's more so when you write stories that are negative on this space, or might sort of shed light on things that are happening at a certain company that might not be going as planned. And that's where you get some of the push back. People have DDoS attacked our emails. People have threatened to sue me. Most of these stories aren't built or relying on one source, but three, or four or five.
Frank Chaparro:
But yeah, I mean, there was a story we put out on a big firm in the space, ConsenSys, and this is happening across the space. People are laying people off by the dozens, by the hundreds almost, at some firms. Because like I said before, at the end of last year, it was unconstrained. You have unconstrained money, there's no focus. You don't go in with a plan like Bakkt, and then step two, et cetera, et cetera. You have $30 million under you, you're 24 years old and you just do whatever you want. And when you build a business like that... And I'm not saying that's how ConsenSys was built.
Frank Chaparro:
I mean, Joe Lubin is a genius, co-founder of Ethereum, but that's just one corner of the space where, of course it's going to translate into layoffs. And even that sort of unconstrained behavior is going to spill over into established firms like ConsenSys, or Coinbase, or Kraken. Where you hired up for a business you thought would be good, and then it ended up not being the case. Or you expanded too quickly in certain areas, and it didn't work out, and so I think we reported on them.
Frank Chaparro:
There was a floundering unit called Token Foundry that had a really bad run with this one token offering called Civil. I mean, they were looking to raise I think, $20 million, they raised less than a couple of million. I mean, this ICO token, some people would call it the token creation market or the ICO market, whatever you want to call it. It's not in a good place right now. And so we reported on a lot of these exits. And there are, as you said to your point earlier, and not to get away from the question, high emotions in this space. And when you attack something that people love, and that they dedicate their whole life to, and they think it's the future, you're going to get a huge push back, but that's our job. That's my job. Anybody can just go around telling the stories people want them to tell, and I'm not trying to sound like some white Knight.
Josh King:
You've written the price up to 20 grand and you've written it down to below four, writing stories all the way, both for Business Insider and now for The Block. You heard very clearly on stage, Jeff Sprecher and Kelly Loeffler with Michael Casey, the quote that is getting around this week is that, whatever the price is, there's somewhat agnostic price and Bitcoin as a digital asset is here to stay. If you could capture where you think people are hopeful or fearful, what would you say are the through lines of both of those?
Frank Chaparro:
Yeah, that's a good question. I think to put it in perspective, going back to the height of this thing at the end of last year, people were expecting projects like Bakkt to come online the month after we saw a futures launch at the end of last year. They were expecting breakneck-
Josh King:
That was CME and CBOE with the non-physically delivered version of their futures contract.
Frank Chaparro:
Exactly. Folks in the market saw that as a sign that Wall Street was then going to pour right into this market, volumes for futures would spike, more people would be comfortable entering the market. And that didn't really pan out. People thought that we'd see an ETF based on those futures very, very soon after. All of those things that people were really excited for at the end of 2017, still are on the table, right? If folks can figure out... And by folks, I mean, cryptocurrency exchanges. If they can figure out how to handle market manipulation, how to build platforms or leverage other firm's platforms to monitor their markets for illicit behaviors, that could go a long way at convincing the SEC that the underlying spot market is ready for a derivative product, like an ETF in the United States.
Frank Chaparro:
So that's on the table, that's something that people are really excited for. As far as price is concerned, I don't know if that's going to do that much for the price, but it will at least lend it credibility to the market for Wall Street firms, make it a little less scary. A lot of what needs to be fixed in this market though, that a lot of people are excited about, has nothing to do with Wall Street at all, but more so with the underlying technologies in this marketplace.
Frank Chaparro:
When you think about things like scaling, the Ethereum blockchain can only handle a couple of thousand transactions or... Excuse me, the average users on these things, active users are a couple of thousand a month on some of these most popular decentralized applications built on Ethereum. The most popular one being CryptoKitties. I mean, if your most popular app is decentralized collectible cats, what does that say about the opportunity there?
Frank Chaparro:
It's just not ready, it's just not ready yet. There could be a huge opportunity, but we're just not there yet. And so even if you have an ETF, I use this weird analogy. It's kind of like if you had an amusement park and you decided, all right, let's get online ticket orders, so you can get online ticket orders, that's the ETF. But if you don't have any cool amusement rides in your park, it doesn't matter how you're getting those tickets out, no one's going to want to go. And likewise, if there's nothing that investors on Wall Street or elsewhere, see as an opportunity in this market to solve a real problem. And I think someone at Consensus said this. A lot of these things are just trying to make up problems and coming up with solutions for them. If you don't get that key, then even an ETF's not going to make the difference.
Josh King:
You had a tweet that was pinned to your Twitter feed for several weeks that I think captures a lot of these ideas. I'm just going to quote @fintechfrank. "This crypto bear market makes a lot of sense. Think about this, one, most ICOs are big dreams/not ready for regulatory reality check. Two, true adoption is nowhere near a reality. Three, institutional platforms have not proven themselves. Four, the average Joe has no idea what crypto is." So within those 200 characters, I don't know if you got right up to the limit, but there's a lot to break down there.
Frank Chaparro:
Yeah.
Josh King:
Let's start from the beginning. You refer to crypto being a bear market, and many people would agree with you on that. Bitcoin had a decent opening at the beginning of the month. It was up at 6,500, but at the beginning of this week, it was trading below 4,000. What if any, is the kickstart that crypto needs to rally back into fours and higher?
Frank Chaparro:
When you have a bear market that's this strong, it can just keep bleeding, keep hemorrhaging. I mean, we could go all the way down to a thousand until folks feel comfortable about this market and see the opportunity in there. Education is a huge gap, until the average Joe as I said, knows what this space is. I mean, folks who are listening probably, who have an interest in this market, when they went home for Thanksgiving to visit their families, how many of their families don't know the difference between Bitcoin and crypto? My mother still doesn't understand, she thinks that crypto and Bitcoin are the same thing. And I think a lot of people think that. And I think a lot of people don't understand what these technologies can do, where they're actually most useful in the developing world. So that education gap is really important.
Frank Chaparro:
And if you don't get that, you're not going to get the next bull market. When I said that institutional players haven't really proven themselves, they haven't even launched. So we don't really know if they'll be successful or if they'll be able to attract investors to their platforms to trade. Goldman Sachs, Bloomberg reported the other day that they... Their guy was at Consensus, the head of their crypto trading operation, and he basically said, "We haven't figured out custody really for our clients. It's not something that it is something we can just hit the ground running on." So that's another gap. There's the knowledge gap, there's the institutional gap. Those are just two points.
Josh King:
I want to go back to the Thanksgiving Day table at the Chaparro household again, and your conversation with your mother. Because there's one aspect of that tweet that we didn't get to. And you say that, "Most ICOs are big dreams not ready for a regulatory reality check." And we hear this term ICOs stands for initial coin offerings, but how would you explain an ICO to your mom?
Frank Chaparro:
Well, that's a good question. I don't know if I ever have, but if I were to, I'd say it's kind of like... I think that a lot of people use Chuck E. Cheese boxes to explain it. Some of these tokens, they serve a purpose, right? They're money, but they're also like a key to unlocking services within a business. Just like when you go to Chuck E. Cheese's, you have your tokens, and those tokens let you play the pinball game or whatever game that you want to win to get tickets, to get prizes.
Frank Chaparro:
And in addition to unlocking different services, the token generations events themselves, the means by which you bring those tokens into the universe, can serve as a crypto twist to the initial public offering process by which these companies by issuing these tokens, and then receiving in return, Ethereum. And in some cases, Bitcoin, and you can raise a lot of money. And then you can raise a lot of money in a very quick timeframe.
Frank Chaparro:
And at the end of 2017, when you had a lot of these token projects raising a ton of money, there were a lot of projects that had ideas that thought their ideas were good, but just had way too much access to capital that they shouldn't. There's always been a question hanging over the capital market space about, how can we get companies that are scared to go to market, to go to market? And there's been some regulatory initiatives such as Reg A+ to lighten the load so to speak, for the IPO process. And I think New York Stock Exchange and Nasdaq have all been advocating for changes to make that process easier and less scary, and less burdensome and less expensive.
Frank Chaparro:
We've seen things like what Spotify did with their direct listing. There's a lot of parallels between what ICOs can accomplish, which is raising capital for companies in a way that probably would've been much, much more difficult before, and what Wall Street has been trying to do. So there's tons of big dreams, but there's also tons of potential in that. And I think you're seeing that translate into the security token market. And you're seeing a lot of companies see where the problems are on Wall Street, capital formation, and where the positives are in crypto, bringing them together, but shaking off the nefarious stuff, and the hype stuff, and the scam stuff.
Josh King:
And your mother would thank you for that explanation.
Frank Chaparro:
She would be asleep at this point. No, she'd be on her second Chianti and just completely ignoring me.
Josh King:
A recent survey this September by YouGov, found that 79% of Americans are familiar with at least one type of cryptocurrency. Bitcoin being the most popular, with 71% of Americans at least recognizing that name and word. However, of these who knew about Bitcoin, 87% of them have not actually interacted with it. Do you buy this notion that has been in the press over recent weeks, that the move down the market is washing out a lot of these sort of innocent rubes who found a way to buy a Bitcoin because they thought it was the retail key to future investment glory, and now is at 3,000 or as you say, could go below 1,000, becomes the province for institutions?
Frank Chaparro:
At the end of last year, you had folks on CNBC showing people how to buy things like Ripple at its height for $3 on Poloniex, which to be sure isn't even an exchange venue that is legally operating in New York State. And tons of articles on different sites explaining how to buy these tokens. And why token X is going to change the world, and token Y is going to change the world. And no one was asking the tough questions because there was just so much going on. So many projects that were paying tens of thousands of dollars a month for public relations and media firms to promote them. YouTubers that were doing reviews that were mostly pay-for-play. And you had all this massive hype machine that lured in probably like 5% of the country, maybe.
Frank Chaparro:
I mean, not a huge amount of people who thought, all right, I need to get in this. The types of people who probably already were trading a couple of thousand dollars on Robinhood. And young professional types, recent college graduates who thought, "Wow, I just got out of college, I got a couple of $100 to spare. I'm going to put it in at Litecoin when it's $150," and now, they have 20% of that now. There's like a bad taste in people's mouth now because of that. So that's why I think it'll take a long time.
Josh King:
Well, there's a bad taste for what we could agree is a very, very small fraction of the investing public, or the using public who's even tuned in to this point. But if let's say, we are at a reset point now or early next year, when Bakkt, and Ledger X, and Nasdaq come out with their offerings and people start to look at this anew. You've put all your cards on the table as a reporter focusing on this space, you've left Business Insider behind, the ability to write about other topics in the industry. You are now focusing completely on digital assets and cryptocurrencies. If you're trying to educate a millennial to think really it's important to read the stories that Frank Chaparro puts out. How do you guide them to say, what as a reader I should look at, that are the important indicators and milestones, that this asset class is facing, that should tell me here's a good development, or this is just noise?
Frank Chaparro:
It's going to take a while for retail to get comfortable with this space again. So for the next year, we're going to be focusing on teams across the space, Wall Street firms, institutional players, building the foundation, which will serve the next bull run. Which will serve the next time that retail folks decide they're comfortable with entering this market.
Josh King:
A big part of the one-on-one, a major player in this space that we didn't talk about. So far, you've mentioned the businesses, and entrepreneurs, and technologists that will be so crucial to making digital assets a more mainstream tool in the financial community. But there's also the role of government and regulation, the CFTC obviously, and the SEC. I want to hear a little bit of the recent clip from Jay Clayton, the chairman of the SEC on cryptocurrencies.
Bob:
Let's just follow up on the Bitcoin issues. You had a settlement with two ICO issuers, as well as another exchange for not registering with the SEC. What's the message here, and what about the people who currently own ICOs? What's the value of their ICOs if they're dealing with a not registered security at this point?
Jay Clayton:
Well, Bob, let's separate securities from non securities. And I think we've been clear that we don't believe Bitcoin is a security, but many of the ICOs that you see and you talk about, they are securities. And if you're going to offer and sell securities, you have to do so in compliance with our laws. I think we've been clear about that. The recent actions further emphasize that our securities laws do apply to the ICO space. If people are going to raise money using initial coin offerings, they either have to do so in a private placement, or they have to register with the SEC. And when you register with the SEC, you got to provide financial statements and disclosure that are along the lines that we would expect.
Josh King:
Some of the original lure, Frank Chaparro, of cryptocurrencies and Bitcoin was that it wasn't regulated, that it was a space that was... If you go back to Satoshi Nakamoto's original theory of Bitcoin 10 years ago, exposed in his essay, was that it was so decentralized and so free of government regulation, and you heard Jay Clayton there. How does it-
Frank Chaparro:
Well, I think Bitcoin is. It was fun to listen to that, because the SEC has been very, very clear about this since last year. If it looks like a security, if it quacks like a security, if it walks like a security, it's a security. And if you offer security, you need to register it with the SEC. I think that people in the space had this weird theory that the SEC would change its mind, or it'd come out with a new framework saying, "Oh, you know, if you call yourself a utility token, then you can just do whatever the hell you want." That's clearly not the case. And I think with the clamp down on those two ICOs, Paragon, which is like a pot coin type thing and Airfox, that is just the beginning. And if you read the letters they put out in each one, I mean, they're very similar.
Frank Chaparro:
And you can tell that this is the foundation of actions that will follow, and they'll be very similar. There's been a game of semantics in this space, and I've been reporting on it for a while. You started out, this ICO's going to change the world, right? And then it was no, no, this isn't an ICO, this is a utility token, different from an ICO, totally different. And we didn't do an ICO, we did a token formation event. And then the next thing was, oh, no, no, we're not a scammy ICO or a token formation event, we're a security token. And maybe we're going to do a private placement. We've filed with the SEC, well, let me see your filing. Oh, we're going to think about filing with the SEC. And so you've had this game with semantics. Finally, people see the writing on the wall.
Frank Chaparro:
So there's a company called Numerai, which is a hedge fund that built a token. They're going to burn half the tokens, and open it up to the public, trying to make it more decentralized. Because they see the writing on the wall. They know if they have this token that looks like a security, that the SEC is going to come after them, that's just the story. It's funny that people, to me, are surprised with recent actions by the SEC. Because Jay Clayton had said it, he said it in 2017, "Out of all these things I've seen, out of all these ICOs, I haven't seen one that's not a security. If you want to know what a security is, look at the Howey Test. And if it fits into that, then it's a security."
Josh King:
What's the Howey Test?
Frank Chaparro:
The Howey Test is basically, so the 1934 Exchange Act shows the four characteristics of what a security is. If you're making an investment with the expectations of returns, then that's one characteristic, there's three others. And that's what everyone who's investing in ICOs, looking for that 100,000x return. Some people don't agree with the theory that the ICO market is dead. I think that 95% of these things are probably securities. Then the question is, well, what do you do when you're a security?
Frank Chaparro:
If you're Paragon, and you issued all these tokens that are unregistered securities, and you have to pay these things back, well, then you got to liquidate your Ethereum. And so what's that going to do to the price of Ethereum? What are the consequences on the ecosystem when you seem selling like that. There's also an issue with, does Paragon have to pay back folks that bought the token who have sold it? Are the exchanges that facilitated the trading of these unregistered securities, are they on the line? And I think moving forward, you're going to see a lot of class action, lawsuits against some of these firms and token projects who said to their investors, this isn't a security, and they were wrong.
Josh King:
After the break, Frank and I will explore his career, and what lies ahead for the future of crypto news. That's right after this.
Speaker 7:
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Josh King:
Welcome back, our guest today in the ICE House is Frank Chaparro, senior correspondent at The Block. We've been talking about the crypto bear market and what lies ahead for fintech as regulation looms in 2019 and beyond. Let's go back to the beginning, Frank, of your rapid launch into the cryptocurrency world. You majored in international political economy and theology, but you got your first taste of finance interning at Nasdaq.
Frank Chaparro:
Don't hold that against me.
Josh King:
I don't hold that against you, but what does your mom think about this sweet young man who wasn't focusing on political economy and theology, and now he's in this space?
Frank Chaparro:
She thinks it's funny probably. I did study theology and mostly economics in the university.
Josh King:
Where?
Frank Chaparro:
At Fordham.
Josh King:
Yeah.
Frank Chaparro:
I like the economic aspect of it, found my way to BI covering fintech. And one day, my editor said to me, he said, "This Bitcoin thing, it's like at $2,000 now, right?" I said, "Yeah, yeah, it's pretty wild. Pretty crazy." He goes, "Well, we need someone to cover it more." I said, "Well, I don't know. I don't know if that's for me. I want to be taken seriously as a financial journalist. I don't know if I should be writing about magic internet money all day long. Who's going to take that seriously?" And this is at the time when I was trying to break into firms like New York Stock Exchange, and Nasdaq, and CBOE and CME.
Frank Chaparro:
And I just thought, "I don't know if they're going to see my byline about me writing about this weird decentralized utopia of crypto maniacs. Are they going to want me to sit down in front of the serious folks who lead their options and equity businesses?" Little, did we know that at the time, you guys were secretly working on Bakkt. And Nasdaq, which I reported a couple of weeks ago, has been secretly working on their own security token offering. And they've all been doing it from the beginning, kind of holding their cards close to their chest.
Frank Chaparro:
And who knows what Bakkt looked like a year ago, when I was poking around asking folks about what you guys are doing in crypto, and kind of saying, well, we're looking at it. Looking at it meant you had this massive plan, right? With tons of firms across the space, Susquehanna included, and Galaxy Digital and many, many others. Anyway, not to get away from the point too much. But it was funny then, a year ago when I was just getting into crypto, talking to Wall Street firms about it. And it was just very different from what it looks like now with Fidelity, New York Stock Exchange and many others getting very serious.
Josh King:
When you decided to finally pick up a pen or look into a computer screen as a writer and reporter, this town is full of traditional media outlets, The New York Times, The New Yorker, The New York Post, people who want to get their start covering city hall, you said that was sort of boring. Those of us of a certain age know the story of Henry Blodget, how his career began, the challenge that he found in the '80s or '90s, and then reemerging as an entrepreneur to build this thing called Business Insider into what it is today. And I know that's really what gave you your great break, but what's that newsroom like? And what does that represent for reporters today?
Frank Chaparro:
Business Insider's newsroom? It's incredible. I mean, from when I started, the level of growth that it's seen and the level of credibility that it has now that it didn't really have two years ago, or even five years ago, there's a lot of anecdotes I could share.
Josh King:
A great training ground for a guy like you.
Frank Chaparro:
Oh, totally, totally. And you have people that... It's leaner, especially on the financial and markets team, and so you really have the ability to own something. I came in and I was able to own market structure and crypto, beats that at a Bloomberg or the Wall Street Journal, who are divvied up between multiple, multiple reporters. I mean, Bloomberg had like 10 cryptocurrency reporters at the end of last year, all sort of jumping on top of each other to write these stories.
Frank Chaparro:
But at Business Insider, you really have the chance to take ownership of it. And they've really started to focus on, at least when I was there, moving away from the aggregation, which they did an incredible job of. They knew how to take stories that were reported by other publications, find what that golden nugget is, that sometimes is buried down at the bottom. And frame it in a way that just captures the audience attention, and gets it front of folks on Wall Street, right?
Frank Chaparro:
I mean, I follow a lot of these financial memes on Instagram, and the stories that they're sharing, even if they're first reported by the Wall Street Journal or Bloomberg, they're often sharing the Business Insider aggregated version. Because it's just a lot more sexier, and a lot more fun, and a lot more delighting to read.
Frank Chaparro:
That said, the focus set there on breaking their own news, and I certainly did my fair share of that while I was there, has increased a hundred fold. And they're getting interviews, and they're getting in front of CEOs that I don't think they were getting in front of, five years ago. And that's much to the credit of the folks and the talent that they're bringing in. I was very lucky to have an opportunity to work there and to work under great reporters, and great journalists and editors, and help me discover this space. I mean, it's where I found Bitcoin. Bitcoin kind of found me in a sense than I found it. I left because I wanted to devote much more time to being at the center of this ecosystem.
Josh King:
So looking back at your time at Business Insider, what would you say was your biggest scoop? How did that come about, and sort of how did your screen light up on your social media channels that gives you the aha moment, like I've really tapped into something here?
Frank Chaparro:
The scoop I look at most fondly would probably be one of my first, and I was just starting to get recognition in covering firms like New York Stock Exchange, Virtu and other important firms in the market structure arena. And it was a very simple story, but it was my first scoop in the space. I had written about things like rebates and HFTs, and things like that, and the debates circling around this market. But it was my first scoop, and it was very simple. It was a higher story, a really top guy at KCG, formerly KCG acquired by Virtu, went to Goldman. And it was very simple. Well, I guess I can't say who my source is obviously, but-
Josh King:
You had a source.
Frank Chaparro:
I had a source and he was right. And I went to both firms and I was able to confirm it. And that was it, it was the first one. And nobody really noticed, I mean, it wasn't that big of a deal at the time, but to me it was a big deal. When I think about my biggest story at Business Insider, probably it would be Fidelity. My stories on Fidelity. One, way before they announced their brokerage execution services for crypto and their custody product in June, I reported that they were hiring to build out those types of services. It didn't have the full picture, but it certainly had more information about what they were doing, including the name of the business, Fidelity Digital Assets, than had ever been reported on before.
Frank Chaparro:
A couple of weeks after that, I followed that up with a report that they had a crypto venture capital unit that was investing actively in crypto companies and different crypto related assets. That at the time of my reporting the fund was inactive, because the folks that were running it had left to start their own venture capital firm. Those stories, I mean, blew up.
Josh King:
But when you are onto one of these big stories with a very well recognized firm, and the PR team doesn't want to confirm and they want to send you in a different direction, you must have over the course of your last few years, seen every type of dodge.
Frank Chaparro:
You know what's a good tactic that they use a lot? Is whenever a smaller company's involved in the story, they'll try to frame it as etc. They'll say, "Oh well, whoever's giving you that information is trying to make that smaller company look good by attaching it with a larger company." When I'm writing stories, I have to think about the motive of the folks who are giving me this information. For instance, when I broke that CBOE was telling its market-making firms that its Ether futures product was ready. I had to think about who were these sources, and how would they benefit potentially from that news being broken, right? And can I trust them?
Frank Chaparro:
That often just means, taking that information and going to other firms that would know, or other people that would know with direct knowledge, and getting that extra confirmation, that extra corroboration. But you always have to think about, who's telling you this information? And most of the time you'd be surprised, and I think listeners would be surprised how often it's just five to 10 really important powerful people that just trust me a lot to tell the story right. And who are the same people, mostly helping me find the news, so to speak.
Josh King:
A big hire story that broke earlier this fall in September, was one that you broke yourself about yourself. You announced that you were joining The Block as its senior correspondent after this great run at Business Insider. What drew you to The Block, and what does this role entail?
Frank Chaparro:
What drew me to The Block itself-
Josh King:
What is The Block?
Frank Chaparro:
Yeah, so The Block has... like any young company, the model changes a little bit. We want it to be a go-to reliable news source and community space for people in the ecosystem, a place where beginners in the space could learn about this market. And we've realized over the past couple of months, as we continue to break news and put out research from the institutional side of things, that that's where the market is. That's where there's a thirst for reliable information, and so we're starting there.
Frank Chaparro:
And so what The Block is now, what it's become is, a feed of reliable information that's valuable, whether it's people on the Bakkt team, I'm sure they're looking at it. People at Fidelity, people at Circle, folks that are interested in the space at places like Goldman Sachs or Morgan Stanley. Auditors, analysts, venture capitalists, who need to know what's going on in the space, they can come to us. Why I joined was because I saw the talent that was there. I saw the ability of the CEO Mike Dudas, to raise from some of the top venture capitals.
Josh King:
What's Dudas's background?
Frank Chaparro:
Dudas founded a company called Button, which is basically a technology company here in New York, that's worth tens of millions of dollars at this point. It was one of the top places to work a couple of years ago. And he previously worked at Venmo, Disney, out of Stanford University. And he fell down the rabbit hole a year ago, and wanted to create this thing, and now we've assembled a team of, I mean, really topnotch experts. They're the people that get me excited to do my job because I have to compete with them, to put out great stuff and to inform our audience.
Josh King:
You said you were initially skeptical of covering cryptocurrency when you were just starting out, because you wanted to be taken seriously as a financial journalist, and you didn't want to write about magic internet money all day. But when you were starting out, crypto was just taking off. Has the bear market affected your reporting at all?
Frank Chaparro:
So when I was first starting to write about it, I was writing about the Bitcoin cash, Bitcoin divide drama, and every other day, just the price going up 10% or down 10%. Floyd Mayweather investing in an ICO. I mean, these weren't the most exciting stories, but they were exploding as far as traffic's concerned. And yes, so that evolved eventually to really focusing on exchanges and the real powerful players, not just the hype folks and the people that are there to make a lot of money. So the stories have definitely changed and the focus has changed, for sure.
Josh King:
We mentioned earlier in the conversation that your Twitter handle is @fintechfrank, but you've earned another nickname Frankie scoops from the breaking news stories you've reported on. I want to discuss one scoop you reported on this week, 10 crypto firms forming a new group, potentially called ADAM, the so-called association for digital asset markets. And it includes crypto firms such as Paxos, Genesis Global Trading and Hudson River Trading, with the hopes of potentially self-regulating the industry. This follows on the heels of, as we talked about earlier, Gemini's announcement that it was to launch the Virtual Commodity Association Working Group, the Global Digital Finance supported by Coinbase, Circle and ConsenSys. What's your take on the industry attempting to regulate itself?
Frank Chaparro:
Well, I think a lot of these are vanity projects, to be completely honest. This is my own analysis and kind of opinion, but Gemini got into doing the SRO. They were working on it for a while after the SEC denied their ETF and said, "You know, an SRO would help." And so they kind of tried to put something together. Tried to get Coinbase involved. According to my sources, Coinbase wasn't interested, why wasn't Coinbase interested? Well, why would Coinbase want to follow Gemini's lead? And so they saw that and started their own SRO. And now you have another one, which my understanding is, there's not sort of like a head of it. There's not one firm that's dominating it, which makes sense. Because a lot of these are smaller firms than a Coinbase, or a ConsenSys, or a Gemini.
Frank Chaparro:
This is serving the foundation, hopefully for something more serious down the line, that can do what was done in equities markets with FINRA and others, to define the standards, define codes of conduct and establish rules for behavior in this space and in this market. But I would play a wait and see game on these things, because at this point, it's just very early. It remains to be seen whether they'll actually accomplish something serious.
Josh King:
You tweeted an article yesterday from Philip Stafford at the Financial Times, reporting on Wall Street's persistence in pursuing digital asset, despite the drop in Bitcoin's price, that we've been talking about through the conversation. Kelly Loeffler, the CEO of Bakkt announced that the company plans to launch its Bakkt Bitcoin daily futures contract. With Wall Street firmly entrenched in the game, do you think it completely changes the future of crypto? Does it actually pave the way for making crypto a more commonplace in investing?
Frank Chaparro:
Well, first I'll say that was a great story, and I love stories like that, that take all of what people who are so inside see as obvious, and provides a nice overview of what's happening and did so perfectly.
Josh King:
As only Philip can.
Frank Chaparro:
Yes, exactly. An incredible journalist and storyteller. I mean, that thing started off so great. Because he starts off with Harvard and just really paints the picture. So definitely go read that story because it was really well done.
Josh King:
So Frank, as 2018 comes to a close, there's still time for a repeat of last year's crypto rally. But assuming that things continue as they are, what are some of your early predictions for cryptocurrency as we grow into 2019? Do we finally get that Bitcoin ETF?
Frank Chaparro:
In 2019? I think there's a good chance if some of these cryptocurrency exchanges can prove to the SEC. For an ETF to go online, we need a secure underlying marketplace. And so if Coinbase finishes the build out of its market surveillance platform, if a few other of the big players like Kraken maybe uses Nasdaq (SMARTS), or builds their own market surveillance platform. I think Bitstamp announced that they'd be using Cinnober, which is a European based market surveillance technology provider. If we see market structure developments like that continue to happen, and the space shake out a lot of the wash trading and the spoofing, then regulators will be more comfortable with an ETF. And so if that happens, which I think we're on pace for that to happen, I don't think it'd be unreasonable to say that you could get an ETF by the end of next year.
Frank Chaparro:
But the question is, what will that do? I don't think it's going to bring... I mean, there's people that probably think it will do what it did for gold. I mean, JP Morgan had research out last year that showed once the first gold ETF came online, the price of gold skyrocketed. Will that happen for Bitcoin? Maybe, but that remains to be seen. So that's something to keep an eye out for. And I think it will happen, and it'll be meaningful.
Josh King:
We've talked about the trajectory of your career from this skeptical reporter covering crypto to one of the leading reporters in the space. And whether you're writing stories that are positive or negative, people are following you for the latest on developments that are happening, and as we go into the new year. So what excites you most about cryptocurrency and the stories that you will be writing about, that it may be in draft form on your computer?
Frank Chaparro:
I think that there are a lot of stories from the hype bubble that haven't been told, like the inside stories on a lot of these ICOs. And so there's something on my computer right now that is one of those stories, and it's going to be pretty big.
Josh King:
Well, Frankie scoops, @fintechfrank. Frank Chaparro, senior correspondent of The Block, thanks for spending some time with us today Inside the ICE House. That's our conversation for this week. Our guest was Frank Chaparro, senior correspondent at The Block. If you like what you heard, please rate us on iTunes so other folks know where to find us. And if you've got a comment or a question you'd like one of our experts to tackle on a future show, email us at [email protected] or tweet at us @NYSE.
Josh King:
And again, find Frank Chaparro @fintechfrank. Some portions of the preceding conversation may have been edited for the purposes of length or clarity. Our show is produced by Theresa DeLuca and Ian Wolf, with production assistance from Pete Asch, Ken Abel and Steven Portner. I'm Josh King, your host signing off from the library of the New York Stock Exchange. Thanks for listening, talk to you next week.
Speaker 1:
The information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties, express or implied as to the accuracy or completeness of the information. And do not sponsor, approve or endorse any of the content herein. All of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security or a recommendation of any security or trading practice.
