Women in Blockchain: Mastering the transition from traditional to new innovation industries
Karen the president of SwissFinTechLadies meets Katie Richards, CEO of Cyber Capital. The crypto expert has been responsible for the custody and trading of crypto assets at the Swiss Falcon Private Bank. Now she is CEO of a foreign fintech Cyber Capital. Karen meets Katie in her new location in Zug.
Please join in and enjoy her insights about crypto, blockchain and DEFI.
Karen: Katie you are coming from a traditional investment banking background. You wer tructuring products for Salamon Brothers, have been responsible for Crypto Assets at Falcon Bank and are now the CEO of Cyber Capital. What fascinates you about crypto:
So when we talk about this new asset class, which has more higher risks but higher opportunities as well, meaning higher risk reward, we are talking not just about product and process innovation we are talking about the future of finance and a new asset class. Risk and reward are always connected. So the crypto market is quite volatile and we have seen that during the last months when Bitcoin was falling from sixty thousand to thirty thousand roundabout.
Karen: So do you recommend buying cryptos nonetheless, despite the volatility, or is it more a product for people who can live with that volatility or who understand theunderlying assets , so they understand what they are buying?
Katie: With anything that we buy, we incurr a risk and we decise to buy in accordance with our risk appetite. have a risk appetite. And I think you need to understand what your own personal risk appetite is and what you’re willing to potentially lose. Right. We know that equities can go all the way to zero, theoretically
Karen: Yeah. And so can crypto – also theoretically.
Katie: Yes so can crypto. So it has that same type of equity line, you know, straight up or down. So I think what it comes down to is , there’s plenty of other volatile assets. It depends if you understand what the underlying is, that you are buying and your risk appetite, pondering what risk you’re willing to bear. And I think, from my point of view, if it was a question, should you invest in crypto, it goes the same for any type of asset you invest in. You need to understand the underlying, you need to know what you’re getting into. And at the time you’re getting into your asset, you’re buying it for a particular purpose. You are showing a particular view, you know, and you’re trying to show that view through what you’re buying. But at the same time, you’re buying. You should also know what you want to get out of it, with any investment. So my point here is, if you’re interested in any underlying, you have to understand what makes it tick, but also know what to achieve and when you can get out. And, of course, you know, if everyone’s jumping out of that asset at the same time, you’re in a spiral market. You have to understand, you haveto do the same. You might have a very wide bid offer spread. But you have to sa, I’m getting out no matter what it is. And crypto currencies is new. It’s not as deep, nowhere near as deep as any of the equity and bond markets. But there are illiquid bonds and there are illiquid equities, you know, so I think you just have to understand what you’re buying. You may be buing an asset which has little depth and breath.And, you know, there are liquid and less liquid cryptocurrency. Yes.
Karen: Is it fair to say that cryptos are. a young industry and therefore you can’t really compare it to a Nestlé share, for instance, because it’s a different stage of investment. It’s younger companies, you bu, it’s more story driven. You are not at a stock exchange with a market maker. And so is that part of the higher volatility as well? So a higher potential, higher volatility?
Katie: Well, I think volatility in any particular market comes from demand and offer steering the pricing. We’re talking about prices, so depending on how many people are in the market, prices may fluctuate a lot. So the market cap is relatively small, as I mentioned before. Because this is a nascent Tech market. Yeah, a nascent asset class it is to some people, they call it an experiment because it also also new. I think you have to understand the technology curve where we are very much at the bottom, you know, the beginnings of the S curve, which means that there are fewer peopl to adopt and so things are more volatile. What is bringing less volatility? Probably market growth over time. Some people think what is actually magnifying the volatility is the presence of derivatives because derivatives allow you to take a view. And it’s nice to see that’s the next step of maturity to the marketplace. And I think over time, as the market matures, as we’ve seen in traditional areas of finance, as certain markets grow, so too do the number of participants. And with the use of derivative products, all of that combined allows for a less volatile marketplace as more people can be on the other side of the market to express their views.
Karen: OK, so is it fair to say we are in the year 1612 and the share and the the stock exchange has just been invented and this is now happening at the crypto exchanges?
Katie: Well, I think we’ve learned a lot from our current experiences with the current asset classes. I think, you as an alternative asset class, you know, there is the question of liquidity. This will improve as more and more people start to adopt an understanding where they should be investing in this market just like any other sector in equities. You know, you have to understand, the use case, the sector that you’re in and what’s driving the underlying. In decentralized finance there are these particular protocols or projects. But I think and you have to understand the protocol, the blockchain it is based on and the technical storage. This is something which is new to many.
Karen: Is regulation a game changer?
Katie: Very good question: So could regulation help to boost the market or to kill the market? So it’s true that crypto currencies are under scrutiny and they are experiencing more and more regulation. Yes, I heard you.
I think we need to step up first on the topic of regulation, understand why we have regulation. And the core needs behind regulation is for protecting investors rights, so investor protection is key. Why do we need investor protection in cryptocurrency as it is not currently mainstream, this we have to uunderstand. And in order for potentially it to become more mainstream, countries are more readily able to adopt when they understand the ground rules of how they need to act within a fair marketplace. And because cryptocurrency are immature but now attracting very much more attention by retail and non retail, the regulators are stepping up to understand more about what this new investment promise is. And in order for, I think, the markets to really grow, investors, particularly institutional, need to understand the rules, which tend to be governed by regulation. So I think this is a positive step that the regulators and the central banks are looking at cryptocurrency and what the potential is. And we also need to understand more on a legal level, the legal frameworks of ownership of this particular asset, as well as the normal codes of conduct within a marketplace for it to become more mature. And regulation, I think, will be helpful only if it’s not going to kill the innovation it needs to be an enabler and not destroy the potential that cryptocurrency and the use of blockchain technology can offer us in the capital markets.
Karen: So you were talking about a very interesting conference, a workshop in London.
Katie: Yes. Going back last year, the Global Digital Finance Group GDF offered some really fantastic events, and they ran one last year with Lovell’s legal agency practice, and it was around DEFI (decentralized finance). And how do we want to regulate decentralized finance? So what is decentralized finance? That means it’s finance that is basically being programmed into smart contracts with reduced human intervention. And we can do this. It’s just code. You know, if this then that is we need to know for process, know the steps of what it means to invest in a loan product or create a savings account. And these types of products can all by now coded into a smart contract. But that means there’s no human intervention. So self executing contracts do not have humans involved. So if something should happen, if there’s an error in the code or a certain situation not being accounted for yet in the code which is programmed in the running of an underlying product, who do you go to? You know, who do you point your finger at? And you can’t necessarily point your fingers at the developers because they’re just developing the coding. Yeah, but decentralised finance by its name is decentralized. There is no one person at the helm that you can point your finger to. Or arrest. You can’t go and arrest the fund managers and you can’t arrest the developer, poor guy who’s just been asked to develop some code. So this is the interesting part of decentralized finance. It’s the challenge of how to regulate. And I don’t think we’ve really got or achieved the right balance and understanding how we need to go about that to create mainstream investment.
Karen: OK, although. There are already some decentralized venture funds around, Yeah, So those DFI funds again, possibly are not for the average retail investor yet. Probably you have to have own coders and participate in the stakeholder input and dialogue that happen for DeFi projects. So again as professional investors one has to understand which of the underlying protocols of DFI you’re investing in?
Katie: Absolutely, with anything you can do, do your own research, your research on tech, code, protocolls, sector, which infrastrucutr problem is solved, what is the revenue stream, you know, and you need to do your research in order to understand what you’re getting involved in and what the risks potentially are. Should this underlying smart contract fail, what do you do? And there is insurance for these types of products. There are defined, you know, insurance that you can buy, just like you can buy insurance on other capital markets products. And so that is also an area within decentralised finance. It’s growing insurance. And the more insurance we have and the better it is, the more people will start to invest in these cases when they feel that they have the insurance should things go wrong.