Why Institutions Are Bullish With Eric Peters

5 years from now, I think most of Wall Street will be well on its way to trading everything in a tokenized way, and that there will be a lot of value that accrues to the technologies and the entrepreneurs that figure out how to provide great infrastructure, great services. And I don't think that they fully appreciate that.

This is going to be a lively conversation. We have Erik Peters, CEO of Coinbase Asset Management, also Jason Yanowitz, CEO of OneRiver. If you don't know OneRiver, they were probably the first, like, real institutions to start allocating to crypto. So very excited for this, this conversation. Welcome.

Yeah, thank you.

Yeah. You've been trading and investing for a little while. I think you said the other day when we were catching up, this is the most interesting time in markets that you've ever seen. I'd love to just get your view on markets. What is happening right now, not just in the crypto markets, but in the global macro markets right now?

Sure. I've been at this since '89. So, I've been at it for a while. And it is the most interesting time. There have been some very interesting periods throughout my career. I think what is remarkable about this one is there's a real transition from the previous paradigm, which was dominated by central bankers to politicians now. So I think that happened during COVID And actually, that was our impetus to get invested in crypto. We saw this transition to extremely large fiscal spending, deficit spending, which I think was rational coming out of COVID But what we thought was, well, now that the politicians are engaged, politicians love to spend money. And for years, they just kind of turned over the economy to central bankers. But once politicians are engaged, we thought, OK, now we're going to start seeing some real spending. And so for instance, one of the dynamics that's changing right now that's remarkable is that the Germans just today, they passed this resolution to allow them to spend massive amounts of money in deficit spending. And this is in reaction to a political move, which was Trump more or less not pulling out of NATO, but more or less walking away from NATO in Europe. And now, yet again, you have a politician who's saying, OK, well, we need to respond to this, so we're going We're going to borrow a ton of money, €500 billion, and we're going to spend it on defense. So these types of dynamics are just— they haven't really existed politically over the course of my career.

Yeah, and that's an interesting note. It's the first time maybe, at least that I've been alive, I don't know if this has happened before, but it feels like the market decisions from the top are now politically driven instead of maybe economically driven, right? Decisions about maybe rates or easing or tightening used to be driven around like, unemployment or things like that. Now it's very politically driven. Is that a short-term phenomenon, long-term phenomenon? Is this just how it's going to work from here on out?

I think it's long-term as in decade-plus. The era of the central banker was literally the entirety of my career, so '89 up until really 2000. And the thing about central bankers, too, is if you look at central bankers around the world, they've all more or less studied from the same textbooks, just in different languages. The amount of policy homogeneity when central bankers are in control globally is remarkable. When you get politicians involved, Trump is different from Biden is different from name your politician. There's just a lot more dispersion, a lot more volatility when politicians are in charge. I don't see any reason like, is Trump going to turn over control of the economy to Powell or the next central bank? There's just no chance. It's like that period is gone for a long time.

Yeah, maybe. Let's actually go there. So if you talk to probably most people in this room who focus on the markets, their view, I think they're starting to be a consensus view that the reason what Trump is doing right now is he's kind of getting us really close to a recession in order to strong-arm Powell into lowering the 10-year. Right. He's basically saying this is the one area of the economy I don't have control over. I'm a real estate guy. I want to— I want to decrease the rates. Which will long-term help the market and help a lot of different other things. What is your view of that?

Yeah, I think that we're still early enough in this administration where Trump loves to blame people for all sorts of things. I think he can blame Biden for a lousy economy, and I think he already is doing that. And I think when you look at Bessant just this weekend on Meet the Press, he was pretty clear that we need a reboot of the US economy. We can't rely on the deficit spending that we inherited from the Biden administration. And he's talking about recession. Trump's not denying that there could be a recession. I think these guys are preparing us for one or two quarters of what they hope will be a shallow recession. And then coming out of that, you can get economic acceleration into the midterm elections, which are incredibly important to Trump and the Republicans.

Will he— do you think he has the guts to take us into a recession and stay there? Because the other side of this would be, yeah, you got to do hard things for a little bit and doge. And there's all this cutting and the tariffs and a whole bunch of other stuff that's happening right now causing a lot of uncertainty. But I don't know if he's got the guts to— maybe this lasts for another 60 days and then he cares about the market too much.

You know, I, I probably thought— I probably would have agreed with that statement. A year ago, I think just the way he's behaving is increasingly dogmatic about wanting to make real change in the economy. And one of our advisors for our firm is now his chief economic advisor. And so I followed pretty closely their views in terms of how they think about crypto, but also how they think about the real economy. And there's a strong need for— economic change. And I think they really believe that. So I think that if we had a market crash, it's a different issue. But I think some market weakness, not an issue. And Scott Bessner is someone that I've known for years as well. I mean, he is a super savvy practitioner. And you look at some of the things that he's doing that will affect crypto in this Bitcoin Reserve, they're super clever economic things. I mean, I think that they want to make real change here.

What do you think is so clever about it?

Well, so they revised that Bitcoin Act. And one of the things that they did in there— so the question was, how are they going to pay for Bitcoin? And I think the obvious response was, all right, these guys are not going to go out and issue Treasury bonds to buy Bitcoin. And I would have agreed with that strongly. I still agree with that. But that doesn't mean that they can't figure it out. So the question is, well, how do they figure it out? And so there's this thing called the Exchange Stabilization Fund. And so currently the Fed has $11 billion of gold marked on their books. This was set up in, I think, 1935. The last time it was— I don't remember when it was last revalued, but it's valued at something like $42 an ounce. What the Treasury can do, what Bessin can do is have the Treasury revalue its gold. Let's say they revalued it to market. That is about a $750 to $770 billion gain. The Fed can then transfer that cash to Treasury. Literally, they just create the cash because now they have this new asset that just appeared on their books. They have value, they can then transition or they can just pass that money along to Treasury. And then Treasury can, in the Exchange Stabilization Fund, can purchase whatever they want. They could purchase Bitcoin. They could purchase— but it made its way into that act. So the point is that Scott's the kind of guy who understands the plumbing of this system and can figure out clever ways to do things like that.

Yeah, that's interesting. Take me into the mind of maybe a CIO It's end of Q1, risk assets are getting hammered. It's not just crypto, it's Tesla, it's Palantir, it's Coinbase stock, right? Things are getting hammered. What are CIOs thinking today, specifically around risky risk assets?

So when you say CIO, and I think a lot of people in this industry talk about, number one, you're talking about an institutional CIO, not a family office CIO, presumably. There are CIOs of, of hedge funds and asset management firms. And then there's CIOs of pension plans and large endowments and sovereign wealth funds. I think those— when people hope that institutions come to the market, they're hoping that that group comes to the market because hedge funds are already here.

They're hoping that the big allocator, the pension, the endowment, and the sovereign wealth fund.

Yeah. So those are what we would call their institutional investors, but they're really the asset owners. They're the ones Everyone in the world, myself included, is scrambling to hopefully manage some of their money. And some of it, they direct themselves as well, of course. So what's going through the mind of those folks right now? What we're seeing, I think that what we'll discover is that over the next year, there are going to be an awful lot of these sovereigns and certain institutions that have started to accumulate. I think if you're a sovereign and you're looking at what the US is going to do right now, it would kind of be foolish to not start taking a position. But there's no reason to really announce that. So I think that we're going to start seeing certain sovereigns invest. When it comes to pensions and endowments—

Just on the sovereign side, are these— because we've seen some sovereigns, it's like Bhutan is doing Bitcoin mining, El Salvador, obviously Middle East has pushed pretty strongly. And will we see like— I don't know, like Western nations, like, I don't know, you mentioned Germany, like, are we going to see, I guess, like bigger Western nations do this, do you think?

I think so. I think, look, if the US is going to go down this path, and I think that we are, then it puts pressure on everyone who's running one of these to make the decision to either do it or not do it. And if you don't do it and the price goes up, there are consequences. If you do do it and the price goes down, there are consequences. And, uh, it seems pretty rational that if you see a real pathway for the U.S. to go down this path and U.S. states to go on this path, you should probably acquire some.

Yeah. It feels like, uh, the U.S. doing the Bitcoin Strategic Reserve or whatever the official name for it was, is actually the equivalent of, remember when Paul Tudor Jones said, uh, Bitcoin's the fastest horse in the race? I think it was May 2020. Yeah. That was the, that basically removed all the career risk. For hedge fund managers. They said, "All right, PTJ does it. I can do it now. And if it goes down, he did it, so it's fine." So it feels like this is the equivalent on the sovereign side.

Yeah, I think so. I mean, there are 100 sovereign wealth funds in the world, roughly, with $15 trillion of assets. So just a percent is a lot of money.

Yeah, definitely. What about on the endowments and pensions?

Those are kind of our clients. We do actually work with some sovereigns as well. Sorry, I should say, on the non-crypto side of our business, we work with sovereigns. I'm not going to show the hand of any sovereign when it comes to crypto. I think the journey of the pensions and endowments has been really interesting. So, Janos, you said we were an early institution to invest in Bitcoin and ETH, and that was in November of 2020. Regulators forced us to disclose that in December, which is I think the market got really excited about that, which is that was when prices blew through the old 2017 highs of the $20,000 highs. I think that it was interesting because part of that narrative was, okay, the institutions are finally coming. What we didn't see is institutions actually come. There was a big run-up in price over 2021. During that run-up, what you saw is the endowments and the pensions set up digital asset working groups. They called them DOGs. And everyone thought that was the most clever name in the world, but they all had the same name. But they really didn't allocate. And so then the market rolled over. And I think they just stepped away. So even the institutions who looked highly likely to commit— and some of them, we were working aggressively with, and they were ready to commit. But they just didn't do it in the depths of that bear market. And then this bull market happened really so fast, you know, kind of post that FTX low. People— there were plenty of people who thought this market was going to be dead forever and they just didn't want to touch it. And the Celsius blowup took most of the Canadian pensions just off the board for quite some period of time because they had made some investments that, that the news, the local newspapers destroyed them over. And so this, this bull market has been so— has been so quick that now these digital asset working groups are back. We're starting to see signs of allocation, but the real wave of money is not yet here. Not at all. I think it's coming, but it's— and this time, I think they have done enough work from '21 up there now through '25 that we will start seeing these allocations.

Are they going to allocate? I feel like venture— I'm guessing they're not just like going out and buying Bitcoin and ETH and SOL tokens. I'm guessing they're doing it by allocating to funds. I mean, tell me if I'm wrong there, but on the fund side, The industry has been dominated by venture funds. I'd guess like, I don't know, 95% of the allocator capital that's come in has gone to the venture funds. Are we— will that continue? Will it be more in the liquid funds? Am I wrong? And they'll just start buying tokens themselves?

I think they will start buying tokens, actually. Yeah, I think they'll be the majors and that's where they'll start. They will also invest in investment funds that focus on crypto. I think we'll see some index investing. There's some very large investors in the world that are looking at defining what their index is that they will measure their own performance by. And so, we've put out the Coin50 Index. And so that, for example, that would be the type of thing that they'd be like, okay, well now we have a benchmark. These big investors tend to need a benchmark to measure their own performance by. So now that we're seeing pretty credible or I'd say very credible indices— but indices where you look at, and you're like, OK, this is thoughtfully put together. Our index has dodged some of the real catastrophes in this space, for instance. And so institutions can then get comfortable with that. And it would make sense that at least part of their investment would be actually in their benchmark.

Will they allocate to anything beyond Bitcoin, ETH, and SOL?

I don't think in size. Investor that I'm talking about right now, I think they will be late to anything outside of those. Maybe there'll be trace investments. Then there may be some investments that they do make because they're in an index. They will have some investments through their venture holdings. But I don't think that they're going to go down the cap table and be investing in the 15th or the 30th largest market cap. They'll get that passive— I mean, they will have some exposure through some of their managers, but not direct buys. I don't see that.

What is the story these days for the big allocators? What is the— so like, if Bitcoin is digital gold, that's an easy story to tell, right? I feel like a couple of years ago you go in there, get into an office, you're like, Ethereum is like supercomputer, world computer. All these apps are going to get built on top of it. Is that— what is, what is the pitch now? What is crypto to these allocators?

I think Bitcoin is digital gold for sure. I think I have always held the view that it is not only digital gold, but there is an embedded technology call option in there because it's the most secure network in human history. And people just haven't yet figured out how to build something on top of that, really, not at scale. And so I still think that we haven't figured that out, but I hold some hope that we will. And if that were to start to happen, I think Bitcoin is a lot more than digital gold. Because at the end of the day, gold is mutable, and Bitcoin isn't really. I think Ethereum, this idea of this global computer— and people talked about stuff like that, but they didn't really understand it. I think the way we think about Ethereum is it's going to be what the global financial system is built on top of. There'll be some other protocols as well, but I think Ethereum will be the most important one. And when we speak with investors, that's what they're thinking as well. Or at least they don't reject that.

Yeah. Do meme coins and this whole debacle of whatever's happened in the last couple of months or several months, how much does that hurt our opportunity at this institutional allocation? I don't know.

It's a fair question. I think it's largely ignored.

Because they just knew that those silly games and they're like, yeah, the crypto people are just playing silly games again?

Yeah, I think that that type of activity has largely been tuned out, which I think is a positive, by the way, because I think investors are focused on the technology. I think the fact that the that the government has made it, that the US government has now made it clear that this is gonna be part of the financial system. The fact that BlackRock got behind this with the ETFs and there's been so much flow. I think that the notion that these assets are Ponzi schemes or, you know, gonna just disappear, I think that that's more or less over at this stage. And so the really frivolous activity probably, some portion of the people in this room are really engaged in that or pay attention to it. I don't— I really think institutional investors are probably spending 98% of their time thinking about the portfolio that's not crypto. And with that additional 2%, they don't have the brain space to be thinking about meme coins, really.

Yeah, that's fair. There's a good panel, I think it's coming up next, with Pranav and David Kolk and some other liquid managers. I'm sure they'll be talking about where we're at in the cycle and stuff like that. But where do you think You said the cycle has happened really quickly. Do you think we're still in the cycle? You think there's no such thing as a 4-year cycle? You think the 4-year cycle is very much intact and this— we're halfway through? What are your views on that?

Yeah, I'm not a 4-year cycle guy on a forward-looking basis. I think you can look back through time and you can see— or you can find cycles in many things. And if they persist long enough, agricultural cycles, certain business cycles, You can look at that and say, that makes sense, and there's a certain cadence to it. I think that there probably is an underpinning to a 4-year cycle in these assets, but due to the nature of the massive change in market cap and the participants coming in, I think it's going to change correlations. I think it's already changed correlations. I think it will change the 4-year cycle.

Do you think fundamentals, like token fundamentals, like REV and, uh, like quality active address, like, like, um, will we start to value these applications and these chains more on fundament— as the institutional crowd comes in, will they look at this on a fundamentals basis or will the industry just stay very like narratives driven for a while?

I suspect it's going to be narratives driven for— look, there's just a lot of people that need to buy these assets. Unless they're just going to dismiss them outright, they need to get a position on. And that's going to be— this next wave is going to be driven by investment committees, at least from an institutional perspective. I think it's going to be driven by investment committees who— it sounds silly, but who just say, okay, well, the US is going to set up a reserve. And there are going to be other sovereigns invested. And it looks like a lot of things are starting to be built on Ethereum. And Wall Street seems to be more engaged. And I keep hearing more about tokenization. And oh my god, we actually own nothing. So nothing is the wrong number. And so that doesn't sound super fundamental. I mean, at a very high-level macro argument, I think it is fundamental. But it's not the kind of— you know, uh, discreet, not building a discounted cash flow for radium or something like, you know, what I think what they'll do is they'll have their junior analysts try to, try to build some of that stuff out. And if they come back with the wrong answer, be like, that's just the wrong answer.

Like, do we just need, we need a better, give me a number that shows ETH at 10,000.

Yeah. You know, just, yeah. Cause we all, we all know that we're going to have to buy some of this stuff. So let's just get it going.

Yeah, sure. Um, maybe as we wrap up, um, is there anything just your, in your position at OneRiver and at Coinbase Asset Management, you speak with more allocators and institutions than probably most of us in this room. Anything that feels very obvious to you right now that maybe to many people in this room we're not seeing yet?

I think the lack of understanding for how impactful rebuilding the financial system on crypto rails is, I think that's really underappreciated. When we entered the space, I think the things that were really underappreciated by otherwise very knowledgeable investors were they thought that you couldn't store these assets safely. They thought they were overwhelmingly used for criminal activity. They thought that because Bitcoin could just be created and copied, that there could be an infinite number of Bitcoin protocols out there, and therefore, there would be no value that would ultimately accrue to any one or group. Those were, I think, the big misconceptions. Now, I think people are being forced to recognize that these assets are here to stay, and they feel horribly about the fact that they looked into them in 2021, and then they didn't buy in the bear market, and there's major brain damage. That prices are as high as they are right now. And I think yet what they fail to appreciate is 5 years from now, I think most of Wall Street will be well on its way to trading everything in a tokenized way, and that there will be a lot of value that accrues to the technologies and the entrepreneurs that figure out how to provide great infrastructure, great services. And I don't think that they— they fully appreciate that.

Yeah. Eric Peters, everybody. Thank you very much.

Thank you, Jason Yanowitz.