MICHAEL MORO: We used to have back in the day people that would show up at our office with a suitcase full of cash.

JUSTINE UNDERHILL: Wow.

MICHAEL MORO: And say, I want to buy some Bitcoin. No one is actually shorting Bitcoin. So all of the borrows that are happening in Bitcoin are not used for speculative shorting.

While we certainly don't believe that Bitcoin is going to zero, could Bitcoin have gotten to under $2,000 last year? Yes, it absolutely could have.

JUSTINE UNDERHILL: I'm really looking forward to today's interview with Michael Moro. He's the CEO of Genesis, which is one of the largest over-the-counter market makers for Bitcoin and other alt coins. So we're going to get into Michael's background as well as what the institutional side of trading Bitcoin looks like. Hope you enjoy.

Genesis really led the way in terms of the over-the-counter market for Bitcoin as well as alternative coins, and then also is leading the way in terms of lending. But before we get into all of that, how did you yourself get into Bitcoin?

MICHAEL MORO: So I met Barry Silbert, the founder of Digital Currency Group, when he was at his first company called Second Market.

JUSTINE UNDERHILL: And Digital Currency Group owns Genesis.

MICHAEL MORO: Correct. And we are a wholly owned subsidiary, yes. And so Barry-- and I met him in 2008. I had just finished seven years in investment banking at Citigroup. And Barry had created this company that could and would eventually take advantage of the oncoming financial crisis. As more assets became illiquid, more assets were being traded over second market, we just really specialized in finding buyers and sellers of illiquid financial assets.

And then Barry discovered Bitcoin himself, I believe, in 2011.

JUSTINE UNDERHILL: Pretty early on.

MICHAEL MORO: Pretty early on he went down the rabbit hole himself. And I think he kind of took his time and went through the skeptic to interested to convert to evangelist phase during 2011. And then in the office all throughout 2012, he just constantly talked about Bitcoin. And so one day we were like, what is it? You got to explain it to us.

And he told us what it was. He actually called it the biggest financial opportunity he thought he'd seen his entire career.

JUSTINE UNDERHILL: And this is back in--

MICHAEL MORO: 2012.

JUSTINE UNDERHILL: Wow.

MICHAEL MORO: And so we said, OK. And we started studying it ourselves a little bit. And we opened up our trading operation in early 2013. The rest is history.

JUSTINE UNDERHILL: Were you skeptical at all when you first started looking into Bitcoin and when Barry started talking about it all the time?

MICHAEL MORO: So back in 2012 when we first started looking at it, I didn't understand it at all. And sort of the Bitcoin 101 resources that are available today did not exist seven years ago. A lot of it's very technical code-- 0s and 1s. And it's like, how does this apply to finance? And we had a really, really difficult time kind of getting our head around, how do you hold something that you can't hold?

So how do wallets work? How do you buy anything with it? And, honestly, the smartest thing that kind of helped us get over the hurdle of learning it was Barry was telling every employee at Second Market at the time-- he gave us two Bitcoins. Every employee got two Bitcoins. And he said, OK, I want you to go and create a Bitcoin wallet. So go to this website, create a Bitcoin wallet, and we will send you two Bitcoins to that address.

You have to do two things. One, you have to keep one of them for an investment purpose. And the other one, you have to find somewhere on the internet to spend it. OK? And so we all went and created our addresses and Bitcoin wallets. And all right, don't lose the private key, because then you'll lose your Bitcoins forever. And so we did that whole thing.

Then all of us are-- everyone's googling how to spend Bitcoin. This is 2012, 2013.

JUSTINE UNDERHILL: Right.

MICHAEL MORO: And there's really only like a limited number of retailers globally that was accepting Bitcoin at the time. And so everyone ended up, like, spending their Bitcoins at the same place.

JUSTINE UNDERHILL: Where did you spend yours?

MICHAEL MORO: So there was a winery in Australia that actually accepted Bitcoin.

JUSTINE UNDERHILL: OK.

MICHAEL MORO: It is now the most expensive case of wine I've ever purchased in today's dollars, right? But, yeah, so people bought, like, alpaca socks and--

JUSTINE UNDERHILL: All the random things.

MICHAEL MORO: All of the things that were kind of available. That was really what-- OK, this makes sense. The actual going through it, receiving it, sending it, and keeping your private keys-- all of that really at least made Bitcoin tangible for us. So we were just kind of getting up the learning curve.

JUSTINE UNDERHILL: So your expertise-- I mean, you come from a Wall Street background. And then you were getting into illiquid market. So Bitcoin kind of fits perfectly into that. What was it like in the early days? What would you say an OTC market for Bitcoin, and how does that differ from something like a traditional Wall Street market?

MICHAEL MORO: So what was really, really hard-- I came from asset-backed securities and background. And so we were used to cash flows and assets. Here comes Bitcoin that has nothing. And then how do you value this thing? How do we get our head around what's a fair price for what Bitcoin was? So price discovery, which is still often cited as a difficulty when it comes to Bitcoin was much, much harder back in the day.

Because back then, you could really only trade on two exchanges. One was in Slovenia and the other the Mt. Gox in Tokyo. We really had nothing in the United States to do this.

And how do you know that the price you're getting is actually the right price? On the OTC side, unbelievably illiquid. And so because we were trying to make a market and so we needed a buyer and seller, the chances of us having a buyer and a seller within the same four-hour window was remote-- at least very early on.

And so we had to use some of our own balance sheet, some of our own capital to make markets. Otherwise, we'd never get a single kind of trade done. And, in traditional markets, you have t plus-3 settlement kind of back in the day. You had sort DTC sort of infrastructure to help settle transactions. None of this existed, and still doesn't, frankly, exist in cryptocurrency today.

So a lot of it was, how do we do this? How do we settle this? And, really, we just kind of made up our own best practices as to what needs to happen. And a lot of those we still follow today.

JUSTINE UNDERHILL: Wow. So what is it like? So is it somebody will call you up on the phone? And what types of clients do you have? How does that exactly work?

MICHAEL MORO: So back in the day, a lot of crypto anarchists-- guys who wanted to stay off the radar of the federal government, who also had a very macro bearish view of the world-- central bank policies cannot possibly last, debt levels are piling up. And so we need a non-sovereign storer of value. And on the buy side, this idea of Bitcoin possibly going to zero, which still exists today, was much more of a real possibility in 2013.

And this idea of Bitcoin could go 100x or it could go to zero-- that very binary sort of hit or miss outcome was really, really-- it fit the portfolio of Silicon Valley venture capitalists perfectly. Because they're used to making bets across a whole bunch of different companies that might become zero or could become Facebook.

JUSTINE UNDERHILL: Yes.

MICHAEL MORO: And so this asymmetric risk reward profile fit that perfectly. So a lot of our buyers in the early day were just that-- were basically the Silicon Valley venture capitalists and venture capital firms that actually started to kind of take that risk reward balance in Bitcoin. Today, it's a lot different. A lot of the early, early guys may have at least sold a portion or a majority of their original kind of Bitcoin holdings. And hopefully they're retired and living a good life somewhere around the world.

Our buy side is much more institutional-- much more sort of hedge fund, family office, typically what you kind of see in some of the other markets and less high net worth individuals. While they still play and are still getting involved, we're seeing this a lot more from a client mix perspective. We're seeing a lot more institutions.

JUSTINE UNDERHILL: Interesting. Would you say that the size of the trades itself has changed over the years?

MICHAEL MORO: Certainly. As the buy side appetite has grown, and, frankly, as the price of Bitcoin has grown, I think that the average size of the transaction has definitely grown. I think early on, we were probably doing, I don't even know, $100,000, $200,000 trades. And then now we're in the millions. So certainly from an appetite perspective, I think that that has certainly advanced as well.

JUSTINE UNDERHILL: In the early days-- 2013-- how would you go about vetting your clients? Was that a big hurdle that you faced?

MICHAEL MORO: Tremendous. Tremendous. And so as I mentioned the early on, a lot of the Bitcoin holders were the crypto anarchists. And just this idea of AML KYC, that kind of like ran against their whole ethos. And the idea of giving up your photo ID, social security number, whatever it was to get vetted from Genesis, which is a broker dealer-- we have to do this.

JUSTINE UNDERHILL: Regulated.

MICHAEL MORO: We have to do this, otherwise you can't transact with us. And so I think that was a hurdle for both of us. For us to get used to the idea that clients didn't want to be on board at AML KYC and for them to learn that if they want to sell big blocks and use Genesis, you have to go through this process and trust us with your personal information.

We used to have back in the day people that would show up at our office with a suitcase full of cash.

JUSTINE UNDERHILL: Wow.

MICHAEL MORO: And say, I want to buy some Bitcoin. I'm not telling you who I am, but here's my proof of funds. And they'd open up their briefcase and there's $100 bills.

JUSTINE UNDERHILL: Wow.

MICHAEL MORO: Obviously, we'd have to kindly turn away the customer and say, I'm sorry, we cannot do cash transactions. We would have to collect all your personal information-- all the background checks and kind of things like that before you can transact with us. But that was really like a wake up call for us as to what the world was kind of like back in the day.

JUSTINE UNDERHILL: And now going back to our timeline, so let's say we're now 2014. Mt. Gox, as you mentioned, there is a pretty big scandal and it collapsed. How did that affect your business at the time in terms of institutions wanting to trade with you guys and getting into the market?

MICHAEL MORO: It's funny. I was telling someone, a friend of mine, a story the other day just what this was like in 2013, 2014 trying to pitch the institutions. Say, hey, we're trading this new thing. You may not have heard of it. It's called Bitcoin. And we were cold calling, emailing, trying to get meetings. And we would either get hung up on, no emails would get returned.

And we used to actually try to go and meet with some banks, and the banks would be like, you guys, you belong in prison for what you're doing right now. That was at least the public perception of what Bitcoin represented at the time. And it was really hard to not recognize some of the negativity that was kind of happening with the Silk Road and Mt. Gox kind of situation.

So went Mt. Gox happened, I remember we all went to the office on a weekend. And said, what do we do? What do you think happens to the price of Bitcoin in the Mt. Gox? So all of us were like, it's going back to 100, which was kind of right when we first started trading-- that was kind of right around the price. It's going to go back to somewhere between $50 and $100 and call it a day-- or just go away entirely.

This is the zero scenario. This is when people lose trust. This is when people say, OK, Bitcoin was a fun experiment, but it's going away. And it didn't happen. And so for all of us who were already coming up the learning curve and kind of the belief curve of Bitcoin, when it didn't go to zero, when it didn't go away, we're like, all right. There's something really here given the resiliency.

That didn't mean that institutions started to take notice. That still took a long time for the folks to kind of come around. But that's why people who were hanging up on us when Bitcoin was 100 is now buying Bitcoins at 8,000. But that's still part of the education process on the institution side.

JUSTINE UNDERHILL: Do you think that ended up slowing down institutional adoption of Bitcoin?

MICHAEL MORO: Certainly, I think. Because a lot of the headlines were not positive back in the day, it was really difficult for folks to kind of take the asset class seriously. And two, because hedge funds are investing third party money-- they're not investing just their own money, they're taking investor funds. And so there's kind of this additional fiduciary responsibility to not put their clients' funds into something that may not be legitimate.

And so it was really hard, I think, to kind of make the case. Even if they wanted to, to sell it to their LPs-- to say, hey, we should buy some Bitcoin given all of the negative press that was kind of happening at the time. So, yeah, I do think that it's certainly slowed things down. But, at the same time, I'm not sure that world was ready for institutions.

I don't know what would have happened if institutions were like, all right, good, go. And I think we would've had a whole host of other problems.

JUSTINE UNDERHILL: It might have been too early. So then moving on to 2015, 2016 talking about issues with legitimacy. We start to see a bunch of new coins coming on the market-- a lot of alt coins. How did that end up impacting your business as well as whether institutions took notice? And did that also scare them off because there were a lot of illegitimate coins?

MICHAEL MORO: I think it certainly confused people. We have Bitcoin, why do we need Ether? And so, again, institutions and family offices sort of came up the, I get Bitcoin, and then here comes the Ethereum. And it's like, OK, what is this thing? And then with Ethereum's success came hundreds and hundreds of other kind of coins that sort of flooded the marketplace over the last few years.

And I think there was a ton of, OK, this is too much and just noise, distraction. And along kind of came with, is this a scam? Is this a Ponzi deal? Just kind of a grab your money and kind of run sort of thing. And so I think that it certainly slowed down kind of the adoption and learning curve, as opposed to just Bitcoin. Keep it simple, just Bitcoin.

And it's possible that investors would have jumped in with both feet a little bit sooner had it just been the case. However, I think it also helped to broaden the horizon of what digital currency could be. Bitcoin is very narrow in kind of what it's designed to do, what it can do. And here comes this idea of smart contracts.

And you're like, oh, wait, I didn't realize you could do this. And so I think it certainly opened up possibility as to what cryptocurrency could enable in the future.

JUSTINE UNDERHILL: So then how did you figure out which coins were legitimate, which ones you guys wanted to get into the OTC market with? How did that process work?

MICHAEL MORO: Most of it's reverse inquiry. Most of it is these hedge funds calling us and say, hey, we heard about this. Can you guys source this for us? And so we really do rely on our buy side investors to sort of come to us and say, hey, we're interested in trading ABC or whatever it is. Can you guys kind of make a market?

It's not as easy to just kind of flip a switch and start trading it. Couple of things-- one, some may have a native blockchain that is different, which means we have to have wallets that are a little bit different and storage and things like that may be a challenge. And separately, because we're a broker dealer, we have to do our level of internal due diligence to figure out whether or not something is a security or not a security, which was sort of the ICO mess that kind of happened in 2017 and parts of 2018.

But once we sort of check the boxes that we need to kind of do internally, and as long as investor demand is there, sure. We'll absolutely make a market and look to get involved.

JUSTINE UNDERHILL: Interesting. So how many coins did you end up getting into?

MICHAEL MORO: So currently, I think we trade about a dozen.

JUSTINE UNDERHILL: OK.

MICHAEL MORO: But many of them are sort of offshoots of Bitcoin. So the Bitcoin and Bitcoin Cash, or Ethereum and Ethereum classic. And so some of them are sort of forks of the existing variations. But it's interesting-- a lot of our buy side guys are still, even 2019, getting comfortable with Bitcoin. That's still where they are.

And so we rarely do get requests for coin number 30, 40, or 50 on the market cap table.

JUSTINE UNDERHILL: Do you notice differences in terms of how the different coins trade? I mean, you guys have so much information.

MICHAEL MORO: So, Bitcoin is the most liquid. It's the most heavily traded. It's been our number one traded coin almost every month with the exception of probably two months. Bitcoin's been number one. And so that has the least slippage in terms of price execution. And as you move down the market cap table, that's where the liquidity discount and premium really