Remarks from Digital Asset Private Fund Conference
A couple of weeks ago on November 3rd our law firm sponsored and ran our digital asset fund conference called CoinAlts. While originally an open conference for all in the digital assets space, it has more recently turned into a client event centered around crypto fund managers. The goal has always been the same though – to come together to discuss topical digital asset items and to figure out ways for our manager clients to operate their business better. We were lucky that the conference happened just before the FTX debacle unfolded because the panels were engaged with the real day-to-day issues involved in running a crypto investment management business.
Below I’ve published my opening remarks and my quick closing remarks. For a list of the speakers and the panel topics, you can visit our CoinAlts website.
****
OPENINING REMARKS
By Bart Mallon
Before we get into everything, I wanted to ask this question – why are we here today? What are we hoping to accomplish?
Welcome everyone to CoinAlts 2022. This is the 5th full installment of the conference series which was started in 2017 dedicated solely to digital asset fund managers and put on by four founding sponsor firms – Cole-Frieman & Mallon, MG Stover, Cohen & Co, and Harneys. My name is Bart Mallon and I’ll be saying a few items this morning and will be with you throughout the day.
I often ask myself what am I trying to get out of a conference before I go – many times, it is just that I want to get away and see friends and have a few drinks. But in general, when I am going to conferences I try to look at what panels will help me with information help me be better in my business or how will it help me look at the world in a different way.
Over the last few crytpo conferences, I’ve felt there was not much new stuff or one good idea that I could carry through back to day to day life – the narratives that I’ve heard lately at these conferences are generally “well we’re in bear market and new good things are coming because that’s how the cycles work”…
So, I guess, if that’s where we are – that it’s a bear market and we have to wait until the next cycle until there is something interesting or important, then why are we here? Before I tell you my thoughts on that, let’s take a quick look at where we have been and what has been accomplished over these last five years since coinalts started.
Let’s start with just the sheer amount of different crypto strategies we’ve seen during this time:
- Long bitcoin
- Long bitcoin and other tokens
- Token trading
- Long/short tokens
- High frequency trading
- Exchange arbitrage
- Blended or Multi-Strat offerings
- Crypto VC
- Mining focused funds and operations
- Yield farming
- Offshore focused exchange trading
- Staking (and the rise of staking specific service entities)
- Ecosystem dedicated strategies
- Lending and DeFi strategies
- NFTs
- Web3, and,
- DAO focused strategies
We all know that each of these are unique strategies, some literally having not existed even a couple of years ago. From these strategies the founding sponsors have collectively worked with our manager clients (many of you here today) to develop “the firsts” in an industry and I’ll list off a few of these:
- The first to really force the definition of crypto tokens as securities – we started with the question of what are crypto assets? I am not sure we know for sure still – we know that bitcoin is not a security (at least for now), but what about ETH and Ripple? At some point we will gain clarity, but our law firm was adamant from the very beginning that many assets would “likely be deemed to be securities” and therefore are subject to many of the traditional investment management laws.
- The first firm to specialize in the crypto audit – how do you even audit something that is not physical and may not have a traditional custodian? There are so many questions here that the team at Cohen had to deal with from the theoretical of “what does it mean to have the ability to control an asset?” to the mundane – “how do we see this asset on a blockchain?”
- The first to deal with issues around Net Asset Value:
- Traditional investment managent space markets don’t trade 24/7
- Concept of first/last business day of a month or quarter versus the last calendar day
- We collective saw themovement from midnight ET to UTC (which I now understand means Universal Time Coordinated – I had to look that up, perhaps Matt can confirm)
- The first full crypto NAV process (as opposed to NAV Lite)
- The first daily NAV crypto hedge fund
- The first questions around Hard Forks – how do you deal with these from an accounting and tax standpoint? How do you deal with any legal issues. Operational items? What to be careful with? Same thing with Airdrops.
- In-Kind Crypto Subscriptions and Redemptions – same thing here – this is a completely different process from the tradfi space and we helped facilitate all aspects of these transactions, from legal to tax to operations.
- Custody – for a few years this was one of the bigger legal and compliance issues for our managers. How do you deal with the various issues around self-custody given the lack of qualified custodians? It’s been a pretty constant five years of dealing with this front and center issue and there are many knowledgeable people here.
- SEC registration – similar to the custody issue, how would digital asset managers actually register with the SEC if they were trading digital assets.
- SEC examination – perhaps even a bigger question than registration was examination. We didn’t know how the SEC would react to our clients – we helped our clients with both of these and found out that they did ok.
- Many people here were some of the first people to speak with regulators of all kinds – SEC, state securities regulators, the IRS – about digital assets. Many people here have been and currently are involved with discussions with legislators for future tax and regulatory bills.
- Finally, the firsts for really building the basis for the industry – obviously legal and audit and tax were huge in this space, but we literally had the folks at MG Stover building APIs into exchanges. Helped correct/fix/create APIs for various exchanges and custodians. Build pricing sources. Standardized OTC trade confirms. Standardized custody reporting. None of the day-to-day nuts and bolts for reporting would happen without these items…and
They even found $5mm hack of a client through their reconciliation process and the client ended up recouping all the crypto.
All of these things are the firsts that were developed hand in hand between our clients and our firms through many hours of phone calls, collaborations, research, a lot of “I thinks” and “we’ll see” and “hopefullys”…some “I don’t knows”…these are the things you go through when you are building the infrastructure of an industry…
I’ve already mentioned the four founding sponsors, but this conference also could not be put on without our Partner level sponsors Cowen Digital, Figment, Standard Custody and Trust Company; and out Supporter level sponsor Aspect Advisors, IQEQ, Silvergate, Withum, Copper, and Nova. We also had our Women in Crypto networking event yesterday which was sponsored by Aspect, Strix Leviatian (a crypto fund manager), and StoneX that had about 75 attendees. CalAlts, HF Alert, Help for Children were also our partner sponsors and we appreciate all their help.
For the first time our conference auctioned off an NFT 1.07ETH to a private collector in the Bay Area…the proceeds from this transaction will be donated to Help for Children, along with a match from our law firm. Anyone else who wants to match, please see Sharon Hamilton over there. I will spend more time thanking Sharon later today, but she is the main person who put this conference on, along with Karen Thornton, so please thank her if you see her today.
We have six panels that will cover topics ranging from legal to custody to raising assets. We also have two special keynotes from Mark Yusko and Punk6529, a lunch, breaks and networking reception at the end. There is no shortage of current topical items that will probably be discussed during these times today:
- Is crypto simply a risk-on asset that will move in lockstep with tech?
- When is the crypto spring?
- How do we not yet have a bitcoin ETF?
- How will the recent OFAC rulings affect business going forward?
- What did Terra Luna tell us about systemic risks of the industry?
- Will the SEC and CFTC begin to regulate through rulemaking or continue with regulation by enforcement?
- What does the successful ETH merge mean, if anything?
- How will midterm elections affect the crypto space, if at all?
- Will FTX continue buying everything in sight?
- Apple, Twitter, Google, Starbucks, Reddit…each one of them have real and interesting crypto use cases…which of these are going to emerge as real things that will be integrated into our daily lives?
- And… funds have raised hundreds of millions of dollars, there are billion dollar funds, and even multi-billion dollar crytpo and crypto VCs fund that have been raised over the last 12 months…what will they be doing with that capital?
So I go back to the original question – why are we here?
I submit we might not know the reason right now but I am hoping we all find ideas, or hints of ideas, during the panels today that will help us in our day to day business and in life going forward. I also hope that something here will spark another first we can add to our list…
With that as perhaps one reason for us to be here, we’ll move into our first item of the day, our Keynote discussion with Mark Yusko, Managing Partner of Morgan Creek Digital, talking here with Matt Stover of founding sponsor MG Stover.
****
CLOSING REMARKS
Thanks to all of the speakers, panelists and moderators today – there were a number of distinct takeaways for me – from not calling NFTs NFTs (instead digital property rights), do not make misrepresentations in your offshore account paperwork, that exchanges and custody will continue to bifurcate, the importance of crypto fund service providers to work together, that defi platforms generally worked, that there is an opportunity with respect to asset prices right now because of the crypto winter, and operational due diligence for crypto funds is in a much different place than it was even a couple of years ago.
Thank you again to all of our sponsors who helped make this event possible and specific thank yous go out to Sharon Hamilton of Cole-Frieman & Mallon and Karen Thornton – I know these two spent an inordinate amount of time working to make sure this symposium would be a success and we obviously could not have done this without them.
At the beginning of the conference I had asked everyone why we were here today…I didn’t realize we would get such a forceful call to action from Punk 6529 but I think that he’s right – we have to look to ourselves to see what we have individually done to help this industry and we have to fight for it. It is not guaranteed.
And with that I’d like to invite you all to our cocktail reception.
****
Bart Mallon is a founding partner of Cole-Frieman & Mallon LLP. Cole-Frieman & Mallon has been instrumental in structuring the launches of some of the first cryptocurrency focused hedge funds. For more information on this topic, please contact Mr. Mallon directly at 415-868-5345.