In September, when crypto investment firm XBTO announced that former Goldman Sachs managing director Javier Rodriguez-Alarcon would join as its new Chief Commercial Officer, it was yet more proof of the blending of crypto and traditional finance.
In a one-on-one interview, CCN spoke to him about the future of institutional investing and crypto adoption. We also asked him about what we might expect from a potential spot Bitcoin exchange-traded fund (ETF) in the US.
In his original statement, Rodriguez-Alarcon spoke of crypto’s “remarkable growth and widespread adoption” being “undeniable. He added: “XBTO has consistently been at the forefront of this evolution, blending its deep-rooted expertise in both the digital asset realm and traditional finance.”
But significant obstacles remain on the path to full institutional adoption of cryptocurrencies. When CCN asked what is holding institutions back, Rodriguez-Alarcon pointed to internal technological challenges at established firms, the confusing multiplicity of crypto options, past volatility and scandals in the space, and simply the industry’s stark novelty for most investors.
He said: “If you step out of the crypto circle, the knowledge and experience is technically non-existent.
“Education is the biggest hurdle we have for adoption.”
He also said the crypto world was bubble and even many of the most sympathetic investors didn’t always follow the news very closely.
However, Rodriguez-Alarcon believes traditional finance’s stance is softening. He cited improving crypto technology infrastructure tailored for institutions, as well as vehicles like a Bitcoin (BTC) exchange-traded fund that add a sheen of familiarity to crypto.
Talk about upcoming spot Bitcoin ETFs, a type of investment product that allows investors to gain exposure to the asset without buying it themselves, has reached fever pitch in recent weeks and months.
Currently, the SEC is reviewing applications for 13 spot Bitcoin ETFs. Many observers believe they will be approved simultaneously, further adding to excitement. Bitcoin prices are also expected to jump significantly on news of an approval.
Approval by the SEC would allow the first of their kind to enter the U.S market. But why is everyone so excited? Rodriguez-Alarcon said: “It is a stamp of credibility, gravitas, validation of the asset class.
“[It’s] a very important recognition.”
Secondly, and arguably more importantly, an ETF makes Bitcoin investing much, much easier for big money investors who aren’t up on the technical details of setting up a wallet and conducting crypto transactions.
The former Goldman Sachs boss said: “You have a very cumbersome process for me to access the asset class, based on [investors’] knowledge, that is a significant barrier to entry.”
Essentially, an ETF approval would make Bitcoin near-indistinguishable from other kinds of investment.
Rodriguez-Alarcon said: “Suddenly, this becomes a very easy way for a facilitated decision making process.”
ETFs are also highly supervised and regulated by the Securities and Exchange Commission (SEC), another boon for investors with a low appetite for risk.
Rodriguez-Alarcon said: “That’s why we’ve been going through this challenge for such a long time – to get the approval.”
When asked about why spot Bitcoin ETFs in the EU and Canada haven’t proved as popular as expected, Rodriguez-Alarcon pointed to the ETF business, especially in Europe, as being more institutionalized. The same product in the U.S would be more widely used by those representing “the portfolios of individuals… [it’s] more for the retailer as opposed to a wealth manager”.
But what could still spook institutional investors embracing crypto? Rodriguez-Alarcon pointed to unresolved questions that persist around regulation, and ongoing legal cases. Institutional investors have their eyes set further on the horizon, and aren’t necessarily reacting to the SEC’s every press release.
Rodriguez-Alarcon said: “Institutional clients are not always thinking about the tactical movement. It’s more about, okay, how will this picture look in three, four or five years?”
Macroeconomic instability also always looms as a threat, of course. Ultimately though, he believes crypto and traditional finance will converge rather than conflict. He framed today’s divide as somewhat artificial, expecting more knowledge transfer over time.
Talking about his role at XBTO, Rodriguez-Alarcon said: “I’ve been working as an investment manager for my whole career. “There’s a lot of knowledge, skill and practice from traditional finance that I think can be implemented on the crypto side.”
Specifically, he highlighted quantitative and AI-driven investment strategies as a sweet spot, calling crypto an “asset class perfect for quantitative investing.”
So while gaps remain in understanding and infrastructure, men and women like Javier bridging crypto and institutional finance see the sectors potentially have more things in common than might initially be thought the case. In their view, each sphere offers tools the other lacks, and past financial crises may offer guideposts for crypto. It’s a landscape still rife with risk for established investors, but no longer written off as some libertarian pipe dream.
Rodriguez-Alarcon said things would happen. He explained: “Adoption will happen and people won’t even realize it.
“That’s what I mean about AI. It’s happened without people realizing.”