$800 Million Crypto Fund Sees A Revolution in Finance: Masters

now is investing in crypto assets. Daniel Masters Joins is now Chief Investment Officer of Global Advisors, also chairman of coin Shares Group. He manages about eight hundred million dollars of assets, including crypto assets. Danielle, thank you so much for being with us. UM. In an interview last month, you said, for us, it is abundantly clear that we are in the midst of a true financial revolution. You're

referring to cryptocurrencies. What makes you so confident about that? Yes, good a good morning, and thanks very much for having me back. UM. The distributed ledger technology that's being pioneered by in development surrounding bitcoin and other cryptocurrencies is really the democratization of transactions in the same way as when the Internet appeared, we saw the news and information traveling around without the necessity for big organizations centers for distribution

of that information. So blockchains, bitcoin and other such crypto assets are democracyizing the transactional interaction between individuals. That's at the core of what makes us a revolution. Can you tell us what is How do you describe coin shares? What what does coin shore is do for for customers? Coin Shares is a nascent digital investment bank. Many of the things we do are an analog and parallel to

what happens in the legacy financial services industry. So we provide investment entry points for people to come into crypto assets without having to own them directly, and we take care of that hedging and replication. We provide services to people within the crypto community, and this is you know, at the peaks of the December prices approaching a trillion dollar ecosystem. We provide a treasury and assets and liability

management type of services, hedging services, and some advisory. We also deploy proprietary capital within that ecosystem, funding these small companies and participating in some of the initial coin offering type of activity that I'm sure you're aware of. Okay, The reason I want just to set that in some contexts is because my next thought it has to do

with what's known as leakage. Right, this is the lead the financial the rather the fractional reserve banking system, and the leverage that you have in that system is the

use of cryptocurrencies. Is this causing a leakage in that leverage? Well, that's a great question, and you know, I mean, I think what is clear is that there was a kind of a regulatory sandbox in which digital assets of all kinds existed all the way from back when we started in right through the third or fourth quarter of last year. You know, when when an ecosystem is a billion or five billion or ten billion, it's almost experimental in the

scope of the main financial system. But you know, once you start rapidly approaching a trillion, and with the associated media hype around it, this all of a sudden became something that regulators, banks, authorities of various kinds of central bank governments decided that it could no longer be ignored. So, you know, I don't think there's any concern from that community at the moment that there's lead kids, as you put it, but I think they're beginning to realize that

there is potential for that in the future. I've never thought that it would be a sort of a fight to the death between you know, crypto and and the the dollar or the pound or the legacy financial system. To me, it's always been a question of what portion

of the total financial ecosystem a cruise to cryptocurrencies. And I think, you know, even if it's only five at the end of the day, that market will then still be much bigger than this right now, Danny, how much of the eight million dollars that you manage, how much is in crypto assets? All of it? All of it? Okay? So how do you go about determining how to invest that money? I mean, is you just sort of invest in bitcoin or sort of? Oh? No, we do a

range of things. So, first of all, the largest bulk of our assets are from one of our companies we own called xpt Provider. An xpt Provider provides bitcoin and the etherorium certificate, the track the price of those assets on Nastack nastack coaxin Stockholm. That is by far our our largest product pool, and let's call that a passive strategy. Then we have active strategies. And the active strategies are

essentially funds of various kinds. Um. We currently have two hour soon to be four, and um, you know, I can describe them generically as multi currency multi strategy in one bucket and index based in another bucket. So in the in the in the the interesting part is the active funds, the multi strap multi coin funds, and there will do anything from protocol coins so the mainstream bitcoin, etherorium z cash, from narrow uh you name it down to you know, small boutique niche type of initial coin

offerings and everything in the middle. So how do you just in just real quick, how do you prevent fraud? Uh? Well, we have a very very a very very detailed screening system. Um. The there are pros and cons to digital finance, and you know, one of the cons is chaos. Um, one of the pros is in that chaos, there is some rich information. It's almost as though, you know the concept of stock analysts stocks analyzing stocks has gone back to where it was before. We have perfect information. So we

have a multi stage screening process. I would say of the small initial coin offering type of things we get coming across our desk. Fewer than three percent make it through that filter. So there is a process to it, and and that's what we have to go through in order to get comfortable. I want to thank you very much for joining us. Daniel Master's chief investment officer for Global Advisors. He is also the chairman of coin Shares, a group Global Advisors on a seventy interest in a

coin shares. I want to bring in Ira Jersey, or interest rate strategist for Bloomberg Intelligence. Uh, Ira, what if you could comment on Richard Clarenda, the number two pick for the Federal Reserve. He is um a respected economist at Columbia University, professor and also a lot of experience in the world of markets asset manager at pimco UM. What if you could tell us what are your thoughts about Mr Clarenda and what do you think he's going to bring to the Federal Reserve. Yeah, so I think

Mr claren is a mainstream pick. Uh just like quite frankly, like J. Powell wasn't even even Governor Quarrels, who's right in front of the House Financial Services Committee as as we speak. Um. You know, Donald Trump has has not gone outside the box. So he's done a lot of other things that are outside the box with who he picked for some cabinet posts and the like, but when it comes to the Fed, um uh, the FED governors,

he's really been more or less mainstream. Certainly, you know, he had certain litmus tests that things like, you know, people who are for modesty regulation and even quarrels. Today, in his prepared remarks is saying that he uh um, that he favors most of the basis of of the post crisis of financial regulations, but that he wants to you know, scale scale some of them back. And I think most people would see that that that's probably not a bad thing for the economy or or markets in general.

And Richard Clarenda is just within that same kind of mold. So iro this is FED Speak week. They're about four hundred thousand speeches by different FED officials this week, more or less roughly. Um. One of them caught my attention, John Williams, speaking in Madrid, uh just a bit ago, addressing the flattening US yield curve, saying so far it's normal. Uh. That said, he said if the yield curve were to invert, they would take it seriously and it would be a

sign of a recession. What do you make of that, given the fact that the gap between ten and two year yields right now is that it's narrowest since two thousand seven and steadily narrowing a short term rates rise. Yeah, and we think we'll continue to narrow further. We actually think another fifteen basis points are so in the two's tens treasury curve for the for the course of the year. Um. So you know that we we we don't have a

lot of experience with this. You know, we have to take into account that we've only had, you know, a limited number of recessions over the past fifty years, and and in more than half of them we certainly saw when yield curves got to got to zero or or inverted that at some point in the future you had you had a recession. But but those legs tend to take a very long time, So I don't think it's

a foregone conclusion. I think what what it tends to happen is the yield curve gets too flat, but the fed continues to hike after that and when they continue to hike after that, they basically, um, they basically clamp down too far in financial conditions, interest rates, the whole entire yield curves goes up too far, and that's when you end up getting recession. Now, can they can they

stop that this time? They They probably can. And one of the ways that they can do that is as you approach that zero, stop hiking, right, just just let the market be for a while. See if the yield curve starts to steep in a little bit, which implies that you're going to have faster inflation in the future and better growth in the future as opposed to you know, continuing to hike to kind of clamp down on on

that growth and inflation. So um, so you have to be you know, the fit has to be very careful. And I think now that we've had kind of these three distinct periods over the last thirty years or so where that's all happened, maybe they've they've learned their lesson. And you know, Richard Clarada is one of those people who I think understands us as an economic historian as monetary policy person. It's good to have him in that

vice chair seat. Because he brings that historical perspective that maybe a few other folks on the Board of Governors doesn't have to follow up on on a Leasta's comment about the four thousand speeches that we're going to have to digest, you can add to that tweets from the President of the United States having to do with currencies and specifically the US dollar. Is that having any effect

on on the value of the U S Dollar? I was noting, for example, stronger at least against the Canadian dollar and just a little bit move lower against the euro today. Yeah, not not huge moves in in the euro from from the tweets. I think, you know, the market at some level is um uh. I don't want to say getting numb to tweets, but you know they

they know that that. I think the president only can control markets so much and and and it's things like uh, fiscal policy that he'll wind up impacting significantly more or what he does things in trade policy and the like that he can control directly. Um, you know, tweets about you know, interest rates and things like that. Given who he's he's appointed, probably are going to have a huge effect. And you haven't seen huge moves in the end, for example,

or or the euro today, it's been very modest. Um. Yeah, after after some of those tweets, A Jersey thank you so much for being with us. Our Jersey chief US interest rate strategist for Bloomberg Intelligence. It has over twenty four billion dollars in assets. It's the second largest credit union in the United States. Pen FED and our and the chief executive and the president joins us. Now this is the Pentagon Federal Credit Union, James Skank, thanks very

much for being with us. Based in Alexandria, Virginia. Mr Skank, maybe just tell us a little bit about pen FED and what you're doing with a new program entitled the Entrepreneur Investment Program. Great. You know pen FED has been serving our community for over eighty three years, and we're as a credit union founded on the principle of people helping people and as a defense credit union, we think it's very important to continue to create jobs across America.

And each year over two hundred thousand veterans leave the service, and about a quarter of them plan to start their own business. So pen FED, several years ago has created a foundation in which we pay a hundred percent of the foundation operating costs, so all the money the foundation raises goes back to support our programs. The one we're very excited about announcing is a program in which donors can donate to the pen Fed Foundation and we're going

to invest in startup companies. And so this is going to be a gift that keeps on given because if we can invest in the right startups, help these veterans that bring some incredible leadership and technical skills, give them capital, and give them a network to succeed, that money will come back to the foundation allows to continue to create eight jobs and invest in more startup companies. So we're pretty excited about this new initiative through the pen Fet Foundation.

Just to clarify, these are not loans, their gifts correct, We actually it'll be these will be loans, this will be investments in so in other words, donate correctly seed capital okay. So okay, So potentially you'll get the money back with dividends, but you're providing it as sensibly at a lower rate, that's correct, and bringing an incredible network. So pen FET has over business partners, We have relations across all fifty states. We think we can identify the

right veterans and what a veterans need. What all entrepreneurs need. They need capital, and they need a powerful network. We think bringing these things together can help really create jobs across America. James, I want to talk to us generally about the idea of a credit union today, at a time when credit availability is uh pretty pretty rampant. I mean,

you can get a loan pretty easily. Why is a credit union better, especially when there's a certain sort of advantage to having scale and a bank beside you, and other sorts of advantages that say Bank of America and uh well Struggle might have. It's about corporate structure. Nothing wrong with the banking industry, but it's a different structure.

Of bank. CEO's primary purpose is to return value to the shareholder, So they want to pay their depositors, the lease charge their commercial loan customers the most, to increase their spread margin, provide return to their shareholders. A credit union is a whole different corporate structure. The whole reason a credit union exists is a service specific field of

membership and to provide the value back to the consumer. So, as a credit union CEO, my job is to pay the absolute highest rate fund deposits, for example two oh seven on a one year CD right now market leader, and the lowest rates on our loans to our member owners run at the lowest spread margin possible to give the value back to our owners, which is the members. I don't have shareholders, I have the members by giving them a lower loan rate or higher dividend rate. By structure,

is a better value for the consumer. But at the same time, as the CEO of a large financial institution as pen Mention twenty four billion, I have to run extremely operationally efficient. The one thing that surprises me here in America is that more banks don't want to convert to become a credit union to align with the structure for the consumer who they're trying to help. Talked a little bit about the members that may try to do business with you in Puerto Rico and what you're doing there. Yeah,

we've been in Puerto Rico for over a decade. We merged with the Fort Buchanan Federal Credit Union about a decade ago. At the time we had just under eighteen thousand members. Today we're one of the largest financial institutions in Puerto Rico with two hundred thousand members. They've come to Penn FED for trust and commitment. We've been there with them through hard times. I've been there twice this year, right after the hurricane, and I've been back in early March.

I bought Gary Sinise back to do a free concert. We opened up the military base Fort Buchanan to the San Juan community and the Greater Island to one show that we appreciate the hardship in the struggle they've been through, but at the same time, to continue to raise awareness. There's Americans in Puerto Rico that need our help. Just like we helped the victims of the storms in Texas, Florida,

New Jersey. These are fellow Americans that continue to need the leadership of the private sector in the public sector to help close gaps to bring life back to stability and normal. They're still over eighty thousand individuals without power six months into it. Can you imagine if a loved one that you knew here in the States, you know in New York or New Jersey or Connecticut or here in Virginia went a week without power. Imagine going six

months without power and fresh water in your home. It's it's Americans need our help, you know, James, I'm struck by the idea that pen fed is trying to serve a specific group of clients. It's a nonprofit. It's trying to be run up by the people. I'm trying to square that with making sure that you're you know, fiscally responsible and catering to clients at a time when to false are starting to up. How how do you sort of manage that and what do you see as far

as the consumer credit landscape goes. Given the fact that we are seeing delinquencies and defaults increase, we still see amazing demand for our business. The the administration's tax cuts have been very bullish. Uh. I think we have historically low unemployment right now. We're seeing demand for consumer loans, automobiles, our market leading credit card products, and home mortgages above

the norm. We've grown over forty thousand new members the first quarter of eighteen alone, So we're seeing great demand for consumer products. But like all CEOs within the finance financial services sector, we have to make good loans. We need to make full doc loans, we need to make sure we know who the consumer is. So we're seeing really strong demand for our products and services. We had a record year in twenty seventeen. We grew one point

seven billion. We've grown five dred million in assets the first quarter. So the current administration policies, low unemployment, is still historically low interest rate cycle. We're seeing great demand for consumer lending. Even though we're late in the cycle as you would think, we still think there's a few years left to run because of a strong demand and with these recent tax cuts. Last year, you opened something

called the Availability Command Center. Tell us what it is and why you decided that this was worth your time, energy and money. Definitely worth our time, energy and money. Because we're an online firm. Pen Fed by Design does percent of our business remotely, phones, mobile web. Of our transactions are done remotely. We do a hundred million transactions

a month. Our Availability Command Center insures our systems are up running twenty four hours a day, seven days a week to do real time processing, not batch processing, real time processing anywhere in the world. For our customers are consumers what we call pen Fed members. With that said, we could also from a forensis perspective, we can track back any one of a hundred million transactions. Look for trends,

look for cyber hacked trends. We have really good visibility and everything flowing into and out of our network real time. So in financial services, like in all industries today, UM making the investment and information technology and infrastructure is worth every penny. James Kank, thank you so much for joining us.

James Kink, President, chief executive officer of Pentagon. Federal Credit Union is Penn FED, which is based in Alexandria, Virginia, talking about a new program for veterans who are opening new businesses as well as credit unions. China and the automobile industry, it is lifting a nearly twenty year restriction on foreign ownership of local jet is Chinese operations. Here

to tell us more. Kevin Tynan, Senior Auto zanns for Bloomberg Intelligence, and you can follow Kevin on Twitter at keV Tyne and ten And alright, keV Tyne and ten. Why is China doing this well? I think they there's a little bit of of the feeling that they want to penetrate some markets outside of their own. UH. You know, it's been very difficult to get Chinese manufacturers established in

Europe or in the US. UH. And the feeling is that if they open up a little bit more, will reciprocate and and get some of their brands in here. So let's talk about exactly what China was doing. They basically are saying that foreign automakers can own more than fifty percent of local venturers. This would remove a two decade restriction UH that had prevented some companies, including Tesla,

from going to China. Is Tesla the biggest potential beneficiary of this or can you point to another company that might see a bigger boon from this? Well, I think from where we are now, he said, that would be the idea that Tesla probably is the biggest beneficiary. Right, All the other automakers have established partnerships UH that probably don't expire for ten years at a minimum. VW and f A W probably double that twenty five years. Um, you know, and and and and those are gonna those

are gonna remain in place. So Tesla sort of coming in as a new entrant into the market probably can establish something, UH in these terms, a little bit more beneficial. But I'm just not sure that you really want to be that involved in the Chinese market without a local partner. I think that would be very difficult to do as well. So the idea that that Tesla walks in and can be independent uh in that marketplace and just gained huge

amount of market share I think is unrealistic. Well, Kevin, can you just give us a sense of what the objection to this fifty type of ownership structure is. Well, that that's a huge market and there's a lot more money to be made and you're basically sharing it with your with your venture partners. I've always said, you know, and we hear all the time about, you know, the

largest automotive market in the world. But when you look back at at you know, General Motors income statement, Um, you know, the the revenue contribution that is brought back into the income statement is just it's it's pennies on the dollar compared to what they generate here in North America. So it's really a volume story there. It always has been a volume story there, but it's not really a profit story, or it hasn't been as large a profit story.

And this sort of opens it up where you can bring back a lot more of those earnings than you had been able to previously. Kevin, is this going to relate in any way to Chinese automobile companies looking to get into the US market. I would I would think so. I think there's other hurdles there as well, in terms of UM regulation, safety compliance kind of things. UM, But but I would I would tend to think that that

would be the goal here. Um when you look at the size of the Chinese market and then the size of Europe or or even North America, and you have to wonder, what you know that that Chinese market continues to growing year after year after year, UM, what the interest would be? And I don't think that the Chinese government would really be doing something uh detrimental to their own companies at the expense of being beneficial for for their uh Western partners, just for the sake of letting

them make more money. Kevin, how much of this comes in response to President Trump? Uh? Some of it for sure. UM, but it's been it's been talked about for probably five years. Uh, so this this predates him, for sure. Maybe the the rhetoric intensifies, uh since he's been in place. But this is not a new concept or or something that's been that's been tried to push forward. Uh, it's at least five years. Kevin you're at the You're You're a consumer

Electronics show? Yeah, I was there, Yeah, Yeah. Why did you find there that that applies to the automobile industry? Is it really all about trying to automate everything that goes on in the cabin? It is. But what I thought, and I was there with Michael Dean, our European analysts, and what really surprised me is is that there is a lot of that, But how far away we really are? Um, you know, this idea that we're going to be level

five full self driving anytime soon. Um, especially for the consumer, for you know, your everyday passenger vehicle, is I think much further away than people realize. Kevin Tynan, thank you so much for being with us. Kevin Tynan, senior autos analyst with Bloomberg Intelligence UH, and he was talking about the move of China to open up its market to UH, to the U S and two carmakers in general around the world other than in China. Thanks for listening to

the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, sound Cloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter, at pim Fox. I'm on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio