Ep. 715 Why Crypto Feels Broken Right Now — And How It Gets Fixed

[SPEAKER_01]: All right, everyone, we are joined by in Europe, Rand Lingham. [SPEAKER_01]: He is the CEO and co-founder of Bridgeport, Europe. [SPEAKER_01]: It's great to have you on and we appreciate your time. [SPEAKER_01]: Hey, Brendan. [SPEAKER_00]: It's a pleasure to be here and really looking forward to the conversation today. [SPEAKER_01]: this is going to be an exciting one, man. [SPEAKER_01]: We get to talk about the back end of what's going on.

[SPEAKER_01]: You guys solve some really big problems when it comes to execution of trades. [SPEAKER_01]: You have some different analytics things that you do in, but a lot of the work that goes on behind the scenes that I would say the average person kind of lets it go unnoticed.

[SPEAKER_01]: You guys are one of the big infrastructure players there and you're also trying to be really innovative and the way that you are doing all this and handling all of this and kind of trying to just push the crypto currency industry move and forward, which is why we're so excited to be able to have you on here because we have a really big retail audience. [SPEAKER_01]: They know it's going on on the retail side.

[SPEAKER_01]: Maybe they even understand or follow what directly affects them. [SPEAKER_01]: But I think it's always good to have a look behind the curtain and say, okay, we see what's happening to the audience. [SPEAKER_01]: But what's happening behind the scenes here, which is where I really think that, again, you all primarily work, but you have a lot of insight with not only who you're working with, but what you've been building.

[SPEAKER_01]: So, as we kick this off, can you just give us a rundown of what you've been building

[SPEAKER_01]: building out entirely over at Bridgeport. [SPEAKER_00]: Sure. [SPEAKER_00]: Very happy to cover those topics and address some of those questions or points that your audience may have, right? [SPEAKER_00]: So, I'm the CEO and co-founder of Bridgeport Bridgeport is middleware for office change settlement.

[SPEAKER_00]: What that means is we connect [SPEAKER_00]: exchanges to custodians to allow trading firms to hold their assets at a custodian and pledge using Bridgeport risk limits on an exchange. [SPEAKER_00]: So this solves for the pre-funding issue and we've seen the aftermath of pre-funding and walking there wrong from instance such as the FDA's [SPEAKER_00]: training firms have the ability to deploy capital very efficiently.

[SPEAKER_00]: Instead of parking capital on multiple exchanges, they will allocate credit in real-time on, exchange as the opportunities arise. [SPEAKER_00]: So you can imagine the efficiency goes up exponentially, right? [SPEAKER_00]: If the efficiency goes up, that brings more liquidity on the exchanges. [SPEAKER_00]: And that also moves this fragmentation problem away, [SPEAKER_00]: If I'm a trading firm, I have $100 million that I want to trade on five different exchanges.

[SPEAKER_00]: I may put $20 million on each exchange, right? [SPEAKER_00]: And if I'm not trading on the exchange at any given time, that's dead capital. [SPEAKER_00]: Yes. [SPEAKER_00]: It's dead capital. [SPEAKER_00]: That's fragmented markets. [SPEAKER_00]: There's no liquidity, it affects prices. [SPEAKER_00]: And a lot of what we're seeing today in the market and we're recording this in February, a lot of the things we're seeing in the market today is a symptom of bad infrastructure, right?

[SPEAKER_00]: There's no other way to put it. [SPEAKER_00]: And as you mentioned, we work behind the scenes, if you will. [SPEAKER_00]: So the retail user is looking at an app [SPEAKER_00]: what we're looking to address is the institutional market. [SPEAKER_00]: And much in the same way as what's happened in FX, Equities, fixed income over the years, we're looking to do the same thing in the crypto markets as industry matures.

[SPEAKER_00]: We need better infrastructure. [SPEAKER_00]: That's where we come in. [SPEAKER_01]: I have seen a lot of people get a little bit frustrated with the liquidity problem that the crypto markets have been seeing in recent months. [SPEAKER_01]: I mean, where do you think that that stems from? [SPEAKER_01]: And why is that a bad thing? [SPEAKER_01]: I think people might not understand the problem of lower amounts of liquidity and what that does to the market.

[SPEAKER_01]: So again, where does that stem from and how does that actually affect the market? [SPEAKER_00]: it's it's not just in crypto any market needs liquid markets to get price discovery right how do you know what [SPEAKER_00]: a commodity or an asset is worth something, right? [SPEAKER_00]: The only way to do that is it's an efficient market where there are buyers and sellers.

[SPEAKER_00]: When there are no buyers and sellers, it's a guessing game and it becomes incredibly volatile to assist the price of any asset, right? [SPEAKER_00]: Or a commodity. [SPEAKER_00]: And we've seen this in crypto a lot, right? [SPEAKER_00]: So we have liquid markets and Bitcoin, EVE, Solana, and so on. [SPEAKER_00]: But outside of that, we have a lot of old coins as they used to be called back in the day that have pretty much scraping zero at the moment.

[SPEAKER_00]: And you can't, no one's, you're never gonna be able to sell that to a buyer because there are no buyers on the other side. [SPEAKER_00]: So where do we get liquid markets from? [SPEAKER_00]: Liquid markets come from demand, right? [SPEAKER_00]: And right now, crypto is a byproduct of the macro economic environment, right?

[SPEAKER_00]: Crypto is not going to be immune to what's happening in the rest of the world and especially with what's happening with tariffs and geopolitics and interest rates and so on.

[SPEAKER_00]: Crypto by its nature is a risk on or a product that means [SPEAKER_00]: generally when people are feeling bullish they come into these markets right so it's not in no longer a case of trying to prove the use case of Bitcoin or Ethereum I think we will pass that [SPEAKER_00]: and the fact that institutions, traditional asset managers, traditional banks are clamoring to be in crypto, is a testament to the fact that it's not a no longer needed.

[SPEAKER_00]: It's just right now it's not a liquid market because we are susceptible to the macroeconomic climate and we need liquid markets for us to be able to trade efficiently.

[SPEAKER_01]: Yeah, you make a good point. [SPEAKER_01]: And that Bitcoin for the majority of the time that it's been around, you know, the vast majority. [SPEAKER_01]: It's behaved like a risk on asset. [SPEAKER_01]: And there's been a lot of thoughts where people could say, you know, oh, it's a hedge against the dollar, it's a hedge against inflation, it's a hedge against, you know, all these different factors of risk. [SPEAKER_01]: And I think you can make that argument.

[SPEAKER_01]: but making the argument and looking at how it has historically performed can be two different things. [SPEAKER_01]: And when you look at its actual performance, it has been most closely associated. [SPEAKER_01]: I would say towards the higher end of risk on assets, meaning that it has higher volatility than the S&P, than NASDAQ, than the Dow Jones, the Russell, a lot of these big indices that we're used to.

[SPEAKER_01]: It has even more volatile, it's even more volatile in nature than a lot of those. [SPEAKER_01]: So I think it's a really good point, saying hey, you know, look at how this thing has performed historically. [SPEAKER_01]: And then because of that, you look at a lot of the things that you just mentioned.

[SPEAKER_01]: You know, geopolitical, macroeconomic, maybe it's crypto-related, maybe it's not, but there's all these different risk factors that I think have gotten people a little bit nervous. [SPEAKER_01]: And so what happens when that happens, when that goes on? [SPEAKER_01]: Well, you can see, [SPEAKER_01]: liquidity may be dry up a little bit and then that kind of runs in this some other issues and maybe that causes different levels of volatility or its own problems.

[SPEAKER_01]: And so this kind of leads us into what I believe you've been talking about. [SPEAKER_01]: I've seen you talk about this before. [SPEAKER_01]: We talk about this $60 billion institutional crypto problem and you say, you know, hey, this thing is broken in today's market structure.

[SPEAKER_01]: I'm assuming that's what you're referring to here is really all of that, right? [SPEAKER_00]: Yeah, exactly, right? [SPEAKER_00]: So you make a very good point in how Bitcoin has performed in the associated volatility with it, right?

[SPEAKER_00]: So one of the reasons why it hasn't performed equities and some of the asset classes in the near history, obviously, and in most recently, there's been price [SPEAKER_00]: It's because it is volatile and it can be uncorrelated at times, but then correlations divergent to various spaces and then comes into one when we have macroeconomic means that affect everything like so. [SPEAKER_00]: What we are building is not necessarily for the short term.

[SPEAKER_00]: We are pricing different. [SPEAKER_00]: That means I don't look at the price, [SPEAKER_00]: because when the price drops invariably, that is when traders reach out to us and want to learn more about the infrastructure we're building. [SPEAKER_00]: When the price is skyrocketing, when it's at 121.30, these problems don't bubble up to the surface.

[SPEAKER_00]: And these problems being trapped capital, as you mentioned, right, trapped capital is a byproduct of just poor infrastructure [SPEAKER_00]: 15 years ago in the first Bitcoin exchanges were being created. [SPEAKER_00]: The only way to buy and sell Bitcoin at that time was to send your dollars weight and once they exchange said the dollars ever arrived they will let you buy sell those dollars for Bitcoin right.

[SPEAKER_00]: And that's how crypto evolved with that model in place because everyone that wanted to be in crypto was well aware of the risk that they were taking and were fine with taking that risk. [SPEAKER_00]: And as a result, infrastructure was not something anyone really thought about. [SPEAKER_00]: up until recently, right?

[SPEAKER_00]: So we had institutions taking part in trading as far back as 12 years ago, but they were fine pre-funding, they were fine getting credit, and they were fine going through the highs and lows because they knew that the market is always going to bounce back. [SPEAKER_00]: That's what crypto is, it's very resilient. [SPEAKER_00]: But we're at a stage now of the maceration curve.

[SPEAKER_00]: where we can no longer live with the sort of poor planning that that came about from 15 years ago. [SPEAKER_00]: And what we're building? [SPEAKER_00]: is infrastructure that is meant to deal with capital efficiency. [SPEAKER_00]: Traitors need capital efficiency. [SPEAKER_00]: More importantly, they need leverage, they need credit. [SPEAKER_00]: But for the last two items to be in place, there needs to be systems that can protect and safeguard assets, right?

[SPEAKER_00]: So the lenders is assured. [SPEAKER_00]: of repayments or at least that it was some mitigated. [SPEAKER_00]: So our infrastructure by building out connectivity to exchanges and custodians, allows trading firms to safeguard their assets at their favorite custodian, whether that's an enterprise custodian. [SPEAKER_00]: a bank clearing house. [SPEAKER_00]: It could be a reputable wall provider, any facility that will allow these trading firms to escrow assets and allocate credit.

[SPEAKER_00]: And when they do that, they exchange is now getting liquidity that they may know of otherwise seen, because that capital might have been sitting at another exchange where it is trapped. [SPEAKER_00]: And it is really hard to put a number on

[SPEAKER_00]: uh... we estimate uh... in that article that you reference it's around uh... sixty billion but it could be way higher than that uh... because there's this capital that's not being deployed because the trading firm is is scared to take on the credit risk of the exchange or the counterpart yeah so i mean when it comes to liquidity you know obviously it's gotten thinner and dryer and we've seen some of the issues that have come from that

[SPEAKER_01]: what do you see the resolution being? [SPEAKER_01]: We've mentioned one being which is obviously, hey, update the technology, update the infrastructure, do what you're doing. [SPEAKER_01]: I think that is certainly one solution.

[SPEAKER_01]: From another end, do you think that other possible solutions represent either a seeing some of these [SPEAKER_01]: fear and certainty and doubt these fud events go away and do you think that getting some structure put in, you know, maybe that's the market structure bill, maybe that's the clarity act, you know, things like that, do you think that that or both of those, seeing the reduction of fear and uncertainty, but also the addition of some of the clarity and structure,

[SPEAKER_01]: bills that we've looked at. [SPEAKER_01]: Do you think that those could be something that reintroduces levels of liquidity? [SPEAKER_01]: Does it need to be something that's more closely tied to what the Federal Reserve is doing? [SPEAKER_01]: I think where people are right now is they feel a little bit confused. [SPEAKER_01]: They say, well, you know, which direction, which catalyst should I be looking at as important to affect the market here?

[SPEAKER_01]: But what are your thoughts? [SPEAKER_00]: Yeah, we haven't even talked about regulations right, and you bring it very important, it's, yeah, the market structure bill is definitely going to impact the way institutions trade or exchanges right is in the US and we're seeing similar sort of legislations being drafted and other jurisdictions as well. [SPEAKER_00]: One of the core tenants of.

[SPEAKER_00]: The market structure bill that we care about is the segregation of assets at a held an exchange where they exchanges own assets is not co-mingled with customer assets and this is to have customer protection in mind right so. [SPEAKER_00]: Obviously, the market wants confidence that their assets are safeguarded when they do have to deposit at a exchange. [SPEAKER_00]: And this is not really concerning equities, right?

[SPEAKER_00]: No one is worried that our favorite broker is going to rub that. [SPEAKER_00]: inequities when you want to buy shares, because there's a system in place where the shares ultimately get clear that the clearing has in DTCC, right? [SPEAKER_00]: Those, these are world trotten paths here and just as an aside, that the industry is trying to make it more efficient through tokenization of those assets on its own and that is a very exciting.

[SPEAKER_00]: in innovation that we also want to be part of. [SPEAKER_00]: But coming back to regulations, once that's in place, that will give confidence to the pension funds, to the asset managers, to the hedge funds that are now crypto curious, but haven't yet. [SPEAKER_00]: invested in Bitcoin or other crypto. [SPEAKER_00]: How do we get them to do that? [SPEAKER_00]: They need infrastructure and systems that they familiar with, right?

[SPEAKER_00]: They're not going to come in and say, let me just use this defy thing by cutting in my metamask wallet. [SPEAKER_00]: That's just not how it's going to happen. [SPEAKER_00]: We need to give them prices that they're very familiar with. [SPEAKER_00]: So regulations will definitely [SPEAKER_00]: play a part in boosting investor confidence both at the institutional level and the retail level. [SPEAKER_00]: And the other point you mentioned was about fun.

[SPEAKER_00]: There's always five with crypto. [SPEAKER_00]: I think that's that's just fun. [SPEAKER_00]: Part and parcel of it. [SPEAKER_00]: There's always going to be data and synics that come through every cycle and say crypto doesn't have a leg to stand on. [SPEAKER_00]: That's fine.

[SPEAKER_00]: Our job as [SPEAKER_00]: infrastructure for the for the companies and for the training firms that are interested in part taking crypto because it is a new asset class it's a very nice and as a class that is still going through teething pains. [SPEAKER_00]: That's in five years' time when infrastructure is in place. [SPEAKER_00]: This sort of conversation that we're having right now will be completely redundant.

[SPEAKER_00]: We'll be talking about other innovations, so we won't be talking about basics like, oh, it's my money safe when I put it on this change.

[SPEAKER_01]: Yeah. [SPEAKER_01]: And you know, getting all this done correctly, you know, it's important. [SPEAKER_01]: It takes a little bit of time, though, as well. [SPEAKER_01]: But I think it's important that we build this out and we do it properly so that everything else that kind of gets built moving forward has a really solid foundation. [SPEAKER_01]: And that's what it's all about.

[SPEAKER_01]: You know, we always use the joke, or maybe even a reference every here that it's not a bear market. [SPEAKER_01]: It's a builder's market, which the same typically has a lot of truth in it because the most work tends to get done in the bear markets.

[SPEAKER_01]: because that's when you have all these companies and projects and groups saying, hey, we can take a step back, we can really focus on, you know, we can dial back marketing, we can dial back all these different things, because the market's just not in a great spot. [SPEAKER_01]: Let's truly create something innovative when everything's kind of acting as the calm before the storm in a sense.

[SPEAKER_01]: And I think that's a good kind of place to say, hey, this is where we're roughly at right now. [SPEAKER_01]: In regards to the fun, I'll put you on the spot a little bit with this one. [SPEAKER_01]: It literally just came out this morning. [SPEAKER_01]: But I saw that there was talks about manipulation between what Jane Street had been doing. [SPEAKER_01]: It was all over the news this morning.

[SPEAKER_01]: Have you got to read into that at all have you seen any of those headlines or have any understanding of what is going on? [SPEAKER_00]: Are you talking about the Jane Street and Tara news, the Tara Luna news? [SPEAKER_00]: Yeah. [SPEAKER_00]: Yeah, I think it's most of that. [SPEAKER_00]: If I'm not mistaken, it's still allegations of the stage, right? [SPEAKER_00]: So it's hard to comment on allegations, especially when there is doubt on what was public information, what was it?

[SPEAKER_00]: I, like everyone else, was shocked at the time when those events did go through writing back in 2022 and I think more will come out as we go through the court case, but I don't have enough information, unfortunately, to provide like a useful comment. [SPEAKER_01]: Yeah. [SPEAKER_01]: No, it's totally fine.

[SPEAKER_01]: I am curious to know more about that as it comes out again, you know, this is something that came out hours ago with or at least got really popular in conversation just a couple of hours ago and we'll need to learn more about it because it's interesting right people always like to. [SPEAKER_01]: to throw around the term, oh, this is manipulated this, manipulated that, anytime something doesn't go their way, they're like, oh, it's manipulation in some way.

[SPEAKER_01]: And so it'll be interesting to get to the bottom of this and kind of say, hey, we had one of the biggest blow-up events in all of crypto. [SPEAKER_01]: Was that actually manipulation or was it just something else? [SPEAKER_01]: You're right in the sense that right now it's a lot of allegations, but it's something to, you know, for all

[SPEAKER_01]: is that Jane Street was involved in maybe talking with Doquan and blowing up Taraluna and they had some role in that and that they were benefiting off of it and so we'll see again what happens but it's something to certainly track along with and by the time that you all are watching this you'll probably actually have a better understanding of what's transpiring there at least we hope so but

[SPEAKER_01]: You know, back to what you're you're doing in building here, you all came out of the really cool analytics product recently and includes things like AI agents and it can even analyze large amounts of data from a bunch of different exchanges, right?

[SPEAKER_00]: Yeah, that's right. [SPEAKER_00]: So one of the common questions we keep getting when we built our office in Selman product is is there a way to quantify the capital efficiency or the saving so the opportunity cost. [SPEAKER_00]: of allocating credit properly across exchanges right to execute trades. [SPEAKER_00]: And so what we built was a protocol the Bridgeport Analytics, which includes a AI agent named Bridget.

[SPEAKER_00]: So Bridget is able to [SPEAKER_00]: Analyze execution orders and trades across 400 different exchanges and grade exchanges based on quality of execution metrics. [SPEAKER_00]: And those metrics include such things such as spreads, fragmentation, liquidity, slippage. [SPEAKER_00]: These all things that traders care about.

[SPEAKER_00]: So they're able to see, okay, if I want to execute BTC Tether at this particular time using this particular strategy, they're able to see where the best execution point would have been.

[SPEAKER_00]: And also using Bridget, AI agent, they can talk a natural language with the agent to figure out specific data points that they need to uncover to give them more information, [SPEAKER_00]: I had it volatility impact my particular trade or what has been driving the price of Bitcoin down in the last couple of weeks has the auto book held up or is it falling after a certain level. [SPEAKER_00]: Right. [SPEAKER_00]: These are information data points that traders would care about.

[SPEAKER_00]: And we wanted to package it in a very accessible way. [SPEAKER_00]: It's available for anyone to use on our website. [SPEAKER_00]: And we think it's a good way to track traders down to our core product, which is Offiction and Settlement. [SPEAKER_00]: We want to add value and then they come down to our product and see that there's more of a benefit in Bridgeport through Offiction and Settlement. [SPEAKER_01]: spot on.

[SPEAKER_01]: Well, you know, in hindsight, looking at all of this, I think we can examine it and say, hey, the best is still yet to come. [SPEAKER_01]: There's so many different things that are going on. [SPEAKER_01]: New cool products and upgrades and changes are being made every single month, every single year. [SPEAKER_01]: And it's pushing us towards the end goal, which I think is something for all the listeners to really get excited about, but you're up.

[SPEAKER_01]: We really appreciate your time. [SPEAKER_01]: Coming on here, where can people follow along what you're doing and what you're building? [SPEAKER_01]: Is there any kind of social media or maybe a web site or a place that people can follow you along at? [SPEAKER_01]: Sure. [SPEAKER_00]: The website is bridgeportmq.com. [SPEAKER_00]: We have a Twitter and LinkedIn account as well. [SPEAKER_00]: Again, Bridgeport MQ. [SPEAKER_00]: And my personal Twitter is at.

[SPEAKER_00]: new to a program for anyone that wants to get my takes on things that I occasionally tweet. [SPEAKER_01]: Awesome. [SPEAKER_01]: Well, you're up. [SPEAKER_01]: Once again, thank you for your time and we appreciate you. [SPEAKER_00]: All right, thanks for having me.