United States, Bitcoin, Avon Ventures discussed on Unchained
To my conversation with Amanda Fabiano and Christopher Ben Dixon so Amanda to go into this a little bit where you talked about. How Fidelity began mining bitcoin in two thousand fourteen? But I was curious. Why was that one of the first things that fidelity tried to do with cryptocurrency mining? That's like a pretty unusual step for a financial institution. Yeah so that's a really great question in. It is interesting project that we worked on pretty early on. So you know fidelity right now cares about bitcoin mining for a few reasons in it's important to stress that our operation has always been researched. I but learning about how this underlying bitcoin mining networks. We think is essential when you're trying to do things like building. Businesses on top of it right or investing in fickling companies and so mining is critical to this ecosystem. So you know. It's critical that we understand mining in being plugged in is important. We don't just mean like physically plugging in the machines more understanding this opaque space that secures the network. So that's what we aim to do with that experiment. We have a group in F. -cat called the blockchain incubator and we do a lot of different experiments with bitcoin. In this was one of many. And what does fidelity do with Bitcoin minds absolutely? We don't disclose any of that information. I'm sorry I it's it's it's all proprietary information APP so we can't talk about that sadly but It it does allow us to. I think the thing that matters most is it allows us to understand how this all works right versus like the profit that we make off of it Being very secretive. It's like maybe you guys are hanging out with associated. Akimoto one can dream and I also wanted as an this is going to take us down a slightly. You know a slight tangent but I was also curious. Fidelity has also mind ether. When did you guys are doing that in? Do you still do that. And if so what would you say is different about mining either versus Bitcoin? Yes so we. We explore all different types of projects and products rate and when we were mining bitcoin. We said Hey we have some service that could also mind either so we explored that for a little bit We have about forty five different. Poc's that we've put on a shelf inside like maybe this is something that will explore later. But it just doesn't make sense right now so we could look back into the ether mining. But right now what I focus on is is mining bitcoin four fidelity and was that just because of the kind of specific characteristics of Bitcoin. Doodoo its monetary policy or did it have something to do with the actual mining of the cryptocurrency itself. I think it's a little broader than that for every project that we bring in the door Which is a lot. We have a lot of ideas. We kind of have to get rid of one project right so because something doesn't make sense for us to work on right now doesn't mean that it doesn't make sense for everyone or it doesn't make sense to re pick that up in the future so basically we just had to shift what we wanted to do. Excuse me And you know we just that was something that we didn't pursue at the time but it could potentially come back. Never know and Can you fill out? What the other initiatives are that fidelity is working on. Obviously I know you guys have fidelity digital assets which does custody you also have trading for institutional investors. Can you just sort of fill everything going on under the shore? So you know we're a large company is often some confusion on the different names right initiatives within the fidelity walls so there's like three main areas so this fidelity center for Applied Technology the group that I work on there's fidelity digital assets and the Avon ventures so we covered what Fidel what cat does But fairly digital assets we also covered that a little bit You know the interesting story here. Is the research group in Africa? You know we build and test these different ideas and when we started mining. I mentioned this to this. Like how do we custody? This asset question right in so that led to US exploring how you know how custody works and that service rate blossomed into what is now is fidelity digital assets in fidelity digital assets is our commercialized business. Unit building projects for institutions. Who WANT EXPOSURE TO BITCOIN? And then I also mentioned Avon ventures So we have an affiliated venture funds and that focuses on the crypto landscape and investing in early stage crypto companies and. Now let's turn. Christopher can you give background on what coin shares does and Wyatt regularly publishes these extensive bitcoin mining reports sure the digital asset manager and we Our businesses to offer customers of wide range of investment products are all related to the Of Industry so we have a suite of eight passive extreme trigger trackers for bitcoin ether extra Paean coin The trade on the Nasdaq in Stockholm and Nordic growth market and burst stood guard. We also have some past products You know one of them being a Malcolm's Fund and we recently launched a physically backed gold token so the the reason we were into bitcoin mining is part of our research effort You know we we believe that education is a huge open gap that needs to be further filled in the space. We believe that if investors are fully informed they will come to the right decisions on their own without having to be influenced by others. So this is just part of our Comprehensive effort to to track everything that But concerns the the bitcoin space and the supply side of the equation. There is extremely important. So that's basically why. Why in there an so at this point in Bitcoin history as we've been talking about where at this inflection point of the third having and I imagine you could look at each period of bitcoins history in between the happenings and kind of put a narrative on how bitcoin developed during that period. And so I wondered know for this phase. What you to feel needs to happen in Bitcoin to kind of further promote its adoption of a few different things In some things that are already happening For example the the rise of proper institutional level custody like Amanda Moving at Fidelity is a huge thing. I think one of the other things that that needs to happen is the PL- proliferation of financial products for minors. Minors are currently unable to fully hedge their production. The way that normal commodities producers can which again or hinders the flow of capital into this whole space. So I mean. Those are some of the things that that I hope can happen if I think that if we if we do get proper hedging products for minors. There we can. We can dampen the the volatility of the market a little bit by a getting some more certainty on on part of miners as to what their incomes are going to be over time which which will allow for professionalization of the sector in Ukraine says a lot of momentum in that space right now right with several companies designing those financial products to help miners reduce their risk. So you know like Chris was saying with the network cash rate how it fluctuates rate. Like we've been talking about all day. Miners have exposure to these swings. Have difficulty adjustments resulting in lower than expected? Bitcoin return from their mining operation. So things like derivatives with difficulty swap can be used to hedge against this risk. It's for potential listeners. Who are not quite familiar with with why that's important. I mean if you're a normal commodities producer like oil producer. You have a you have a really good idea of how many barrels you're gonNA pump out of the ground over a certain time If your bitcoin minor end at you know as an oil producer you can. You can hedge by selling the production forward using a deliverable futures contracts. If you're a bitcoin minor you don't have that luxury right now. Because you don't actually know how many points are gonNA produce so and that is because of the difficulty you know how much hash rate you're gonNA produce over certain time but without having some way to hedge your exposure to the difficulty. You don't actually know how many coins that hush rate is gonNa Produce and that's a problem. Yeah there's a lot of things that you don't know in bitcoin mining and two of the biggest one being the price of bit claim and the The rate of pass rate so. It's fun these things. These future products I cash rate derivatives would be super helpful for minors. So out that risk. How does that work like find a minor? We just walk me through the steps of how it is that a hash rate derivative helps me you know hedge my risk when it comes to mining. Yes so if a minor a minor would be long difficulty in the contract so the minor receives a payout in Bitcoin if the difficulty increases more than expected so it would make up for the lower than expected bitcoin revenue from the mining operation. Oh I see so. Every mining operation sets up with a certain set of assumptions for where the price of difficulty will be in the future But having access to these types of derivatives would allow them to protect themselves if you know the difficulty increases by by more than a what they thought it would and what is the cost of purchasing something like that. Is it nominal so right now? It's it has a long ago. This is I think very beginning stages of this type of product being delivered. Sorry team has been exploring some of these contracts and just their structures overall and we've even conducted some paper trades which has been an interesting learning experience for us but ultimately I think there's just a long way to go to figure out exactly how these work your pricing is a big open question there and so most of the most of the current products that are out there are have been OTC in bilateral for the most part and they rarely extend past one single difficulty period and for these products to be fully functional in terms of what the miners need. They would have to have a much longer range than that. So pricing is a big big open question here and I don't think anyone has to answer yet another really interesting products that is coming out that we seize on like structures so this is allowing exposure to bitcoin mining without some of the operational headaches. So if you could mine. Bitcoin for a lower cost than you can buy it on the open market. And you take on this long. Bitcoin mentality funds in alternative. Diversify your exposure to bitcoin. Because with the right operational setup you can mine bitcoin at a discount rate. So how does that work? So it's it's similar to like traditional fund so say if an investor invest money into you know the type of operation a give money to the operation and then they would just get out bitcoin or US dollar in the end depending on how it's set up so we've seen some companies exploring this type of structure which should be really interesting Some of our reach has also backed up that there is institutional demand for this for just generally not funds but just generally structuring products around bitcoin mining so in two thousand nineteen and again in two thousand twenty we held a survey for institutional customers and we asked them if they would be interested..