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Exploring the Crypto World
125 Plays1 year ago
We release a previously recorded episode from our archives with Mark Hiriart from OSL. We discuss the role of crypto currency in the institutional landscape and break down the value of digital assets.
Please note that this episode was recorded in mid 2022 and some edits have been made to keep it relevant for today's audience. Mark Hiriart has left OSL since recording.
The Alpha Females Invest is a financial podcast for those who want to elevate their investing knowledge. We host a series of experts to navigate a technical deep dive into their field of expertise.
We aim to promote gender diversity by having at least an equal representation of female guests on our show.
Thank you for listening and supporting The Alpha Females Invest.
Disclaimer: The views expressed in this podcast are those of the speaker. The content is not financial advice. You should seek the assistance of a professional who can take your personal circumstances into account prior to making any investment decision.
This episode was edited by Emily Li.
The AFI music is courtesy of artist @tmykmusic.
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Transcript
Podcast Returns & Changes
00:00:00
Speaker
Hi everyone, thanks for tuning in. You may have noticed this is the first time we've posted an episode for a while. Overseas moves and various other issues have got in the way, but we were hoping to come back with a few changes late this year. This episode is one we actually recorded about 12 months ago now, so please keep that in mind when listening. Also, since recording, Mark Herriot has left OSL.
00:00:25
Speaker
We still think the episode provides some really interesting perspectives on the digital asset space and that's why we've made some edits ready for release. We hope you enjoy and see you again very soon.
Introduction to Alpha Females Invest
00:00:40
Speaker
Welcome back to the Alpha Females Invest podcast. We bring diversified perspectives from the buy and sell side of the finance world. As usual, any information discussed in this podcast is not financial advice. All opinions reflect those of the individuals and this podcast is for educational purposes only. You should always read the PDS and talk to a financial advisor who can consider your personal circumstances before you invest.
Meet Mark Herriot
00:01:06
Speaker
Today on the show, we have Mark Hiriet, who is Head of Business Development and Sales for OSL in Australia. OSL is the world's first insured and SFC-licensed digital asset platform, providing prime brokerage, custody, exchange and SaaS services for institutional clients and professional investors.
00:01:25
Speaker
Marcus had an extremely interesting and diversified career and prior to OSL had 15 years experience in trading, sales and structuring equity derivatives at large investment banks. Most recently, he was head of flow derivative sales at Morgan Stanley in Hong Kong before moving back to Australia in late 2020 to build the structured solutions business focusing on domestic asset owners.
00:01:48
Speaker
Prior to that, he traded equity derivatives for JP Morgan in Sydney and worked on the structuring and sales desk in both Hong Kong and London. Welcome to the show, Mark. Thanks for having me. Pleasure to be here. We are very excited for today's episode and to help break down some of the barriers around understanding crypto. But before we do kick off, I would love to ask you, Mark, what is your most embarrassing career moment?
00:02:14
Speaker
Yeah, right. No, thanks so much. I've probably had a few. If you've been in investment banking as long as I had, yeah, there's probably a few. The ones that really stick out are the ones where you make your big first trading error. It usually happens probably in the first six months and you get that sick feeling in your stomach and they're good lessons to learn early on. But probably the best embarrassing ones is probably the disco shirt or the concept of the disco shirt. I'm not sure if you're familiar with that one. I actually haven't heard of that phrase, so please do elaborate.
00:02:43
Speaker
Yeah, sure. So being usually a single male in finance, you know, you have to have your shirts and your suits ready. And probably being a single male like myself was at that time in my twenties, just completely disorganized. So you have your shirts ready. And what would happen is you get to the Friday and then you run out of shirts or your work shirts. So you reach to the back of the cupboard and there's the one there that's too big, too small, flower print, purple, black silk.
00:03:11
Speaker
So I probably want all of those into the office at some point. And then was like, yeah, he's got his disco shirt on. So I'll probably say that's happened many times, but yeah, the disco shirt probably up there for me. I really do wish I had been there to see some of those disco shirts. I'm definitely going to keep an eye on people's Friday outfits now. Exactly. So let's start with simple.
What are Digital Assets?
00:03:32
Speaker
What is a digital asset? Does it include crypto, Bitcoin, and there's other common phrases that we often hear about? Yeah, sure. It's a good question to start with. Yeah, I think a digital asset is basically anything that has some sort of identifiable value and a claim of ownership. But this thing is purely electronic, right? So it could be Bitcoin, as you said, it could be an NFT of a
00:03:57
Speaker
monkey or you know whatever else or it could be a favorite sword in your computer game that you're playing. So the criteria I kind of look at and to be fair like this is an ever evolving space and we're really new but the way I like to personally look at it, is it electronic? Does it exist in the digital realm not in real life?
00:04:17
Speaker
Does it have some value? Is there a clear way to define the ownership? That separates it from something digital. You can have something digital, but it's not a digital asset. Before NFTs came along, maybe your profile pic on Facebook. That's something digital, but it doesn't really have a value to it. Bitcoin, Ethereum, all these other cryptocurrencies, they're all digital assets. OSL, that's what we do. We're a platform that allows people to access these digital assets.
00:04:43
Speaker
So given they're in the digital world, as you said, and it has to have value, but how do you frame that value proposition? Some people do think that it's a store of wealth or a payment, but what actual value do the digital assets hold?
00:04:58
Speaker
Yeah, so digital assets is a very, very broad term, and it does encompass all those things you described, like cryptocurrencies, NFTs, security tokens, or anything else that I guess hasn't come along or been developed yet. So each of those different assets in themselves can have their own value proposition. So Bitcoin typically is seen as a store of value,
00:05:22
Speaker
a mechanism to have borderless payments, pristine collateral. Some people think of that as well. Ethereum, people think it's like the world's internet computer and all the applications that run on that. So that has a value, that network in itself. NFTs and the value of that is
00:05:39
Speaker
Effectively digital property rights the nft is the first time you've been able to anyone to have some of the property rights as opposed to property rights typically have been like a legal construct in the real world so it is a way of having that construct electronically and so the first inspiration of that is.
00:05:55
Speaker
monkey pictures or crypto punks or these funny NFTs that are going around and there's great communities around all that stuff but really it's that way of having a digital property right which sets it apart. There's also things like security tokens so that's the kind of a new and burgeoning industry so a security token is kind of like an electronic digital tokenized
00:06:16
Speaker
equity for a better word and these can be used for you know, fund units or can give you like an economic exposure to a company just like an equity would. So that's going to be a hot area as well over the next few years security tokens.
00:06:29
Speaker
So as I said, we're pretty early. All these kind of digital assets will continue to evolve and there'll be new methods of economic value and incentives that follow them. So I think that's the scene. And then talking about how people invest in them, you are seeing a great deal of investment in this space. And not only in the publicly traded tokens that you hear about, but on the private pre-IPO space, there's probably
00:06:54
Speaker
Last year was probably 35 billion dollars worth of sort of private equity slash VC style investment in this space so and that was probably greater than the sum of the previous 10 years so like people are starting to see the value proposition in all these different things and it is a spectrum of things and this is this is sort of a trend that's continued to grow.
00:07:13
Speaker
We're on the same page there about the trend continuing to grow and that said about the pre-IPO capital markets is super interesting and just goes to show how quickly this is becoming at the forefront of both retail and institutional investor minds.
00:07:28
Speaker
I guess on the flip side of that, what are the key risks associated with digital assets? Sometimes you hear of these horror stories about people unable to offload their asset or maybe it's been stolen or lost given that the regulation really isn't as strict as other types of asset classes. Is that a misconception or are those risks actually still real?
00:07:50
Speaker
I think the first thing you'd always say is like any investment carries risk and full disclaimer I'm not giving any investment advice on the nor are you I'm sure but you know the digital asset space is on the bleeding edge of like technology at the moment and people building things that
00:08:06
Speaker
invariably might break because they're trying something new right they're trying to do something new that's never been done before you know we saw that recently with the collapse or the you know the falling of terror ecosystem you know it was trying to do something no one had really done before like that in that sense and it grew too fast and it was unsustainable and it failed but all these kind of new innovations that they are new innovations which kind of makes it exciting but very big does carry risk
00:08:32
Speaker
I'd sort of equate it to investing in like a small cap or a high growth kind of TMT sector in the equity space where you see what's the term that people have, the internet companies with no revenue, there's like a basket, all this kind of stuff. It's like you have all these high growth stuff, people piling, they're bleeding money to try and get the business up and running and they hope they get into something. Unprofitable tech, that sort of thing. It's the same kind of thing. So I'd think of it like that with any investment,
00:09:00
Speaker
you never put in more than you could afford to lose. And that goes without saying with those equities or crypto or anything else. But you've touched on the point there, regulatory reform, and it's coming. And OSL, we set up, I wasn't there, but as a business, we were set up purely with the regulatory mindset from the ground up. That was the forefront of our founders' minds. It was to be able to
00:09:21
Speaker
create a crypto platform that was regulated that can act or deal in a regulated world and face regulated counterparts. That's why the business exists. We're pioneers in that regulatory space. We won the first crypto firms to be listed on our main boards of the public equity market. We've been listed in Hong Kong. We won the first crypto firms to be big four audited.
00:09:47
Speaker
People like us are trying to bring the standards up. There's going to be regulatory form. In verity, there's going to be situations with this new technology where investors, unfortunately, will lose money or projects will go down. But all we can do is try and provide those safeguards around it. So give people full disclosure, vet the projects that we list on our platform, and education really.
00:10:08
Speaker
I think that's an interesting point and I do really want to dive into the OSL platform and how it works in a bit. But perhaps before we do, and I think this really ties into the whole concept of regulation.
Simplifying User Experience in Digital Assets
00:10:19
Speaker
But the user experience in this asset class is often described as confusing because there are so many different types of digital assets and it's hard to navigate that sometimes.
00:10:29
Speaker
So from both your perspective and OSL's perspective, how are you breaking down that information barrier? And what are some of the easiest ways to get an investor's head around this? Yeah, no, it's a good question. I think there's a couple of things. If you're not crypto native, it can be quite daunting coming into the space. There's like a steep learning curve.
00:10:50
Speaker
And even when you're inside crypto, people often say that the final boss of crypto or the thing that's going to enable mainstream adoption is going to be the UI UX problem. What I mean by that, if you're dealing with these protocols, you're interacting on chain with wallets and
00:11:07
Speaker
wallet explorers and all this kind of thing and whether it's DeFi, whatever it might be, it can be quite daunting. And so even something like MetaMask, which is typically like the wallet and the interface in which you interact with like the Ethereum network or ecosystem, you know, that's become an industry standard.
00:11:25
Speaker
but you'd never get like my mum or my nan using Metamask, right? And so enable the crypto to have its mainstream adoption moment. I think it needs to get to a point where, and not just crypto, but digital assets in general, where people are using them and they're interacting with them, they're finding value, but they not necessarily know that they're using it. You know what I mean? So that's been sort of abstracted away. And I think once we get to that space point in time, I think that will sort of
00:11:54
Speaker
There's other things that need to fall in place like regulation etc and the macro, the larger macro environment. However, I think that's going to be the point where we should keep in point and things go mainstream. And then, yeah, as you say, there's so many different tokens, so many new projects, and it's kind of exciting. For me, there's the investment side, but there's also like the, it's like a Netflix series that's continuously on all the time, especially if you hook yourself into crypto Twitter.
00:12:22
Speaker
There's just new stuff happening every day. There's some scandals. There's gossip. There's exciting breakthroughs. There's everything. And so that's for me, and I'm sure a lot of people involved in the space, it's kind of, it's taken over their financial piece. It's taken over the sort of tech part of their mind. And now it's taken over this sort of like the media consumption part, because there's so much interesting stuff happening all the time. Like a day in crypto is like a month in the regular world. Yeah, there's always new stuff happening.
00:12:48
Speaker
Great. Thanks, Mark. So I would love if you could please tell us a little bit about OSL and how the platform works.
00:12:55
Speaker
Yeah, thanks. With one of the original crypto firms, we started in Asia, and we're probably regarded as a leader in the regulatory compliant security and transparent end of the market. So two thirds or two or three of our founders are actually Aussie. Many of our senior executives and heads of businesses are all Australian. So we kind of see ourselves as an Aussie business, to be honest, even though we sort of started over in Hong Kong and now we're global, we're sort of an Aussie crypto firm.
00:13:22
Speaker
DNA level. Most of the staff come from similar backgrounds to myself, worked in banking, worked in Aussie banks, whether that's the front office or tech parts. So from that early days, the founders and everyone at the firm at the moment, they're really focused on bringing that sort of institutional mindset to the digital asset space. So when a client interacts with RSL, we want to give the impression that if it's not RSL on the other side, it could be a big
00:13:49
Speaker
blood bulge bracket investment bank and that's the kind of level of service we're going after it's just the asset itself is not equity or delivery of commodity whatever it is it's a cryptocurrency or it's a digital asset so that's a big part of our business in our USP and we're also pretty one that few license firms globally so we are the first and actually
00:14:08
Speaker
I think someone else just got it, but the first company in Hong Kong to be licensed by the SFC for type 1 and type 7 regulated activities. So we're held to the same standards as a Goldman's or a JP in Hong Kong under that licensing regime. So the service we give our clients is obviously we aim to be of that standard, but also internally the governance, the reporting, all the compliance, et cetera, et cetera, we're held to the same standards as an investment bank dealing with these activities in Hong Kong.
00:14:37
Speaker
you know, that's kind of a big part of what we're trying to do. So yeah, we've got some different products that would suit institutional investors. But the main four, I would say, prime brokerage. So think of that as similar to what you'd get an investment bank. So market access, synthetic trading, block trades, we have like blocks desk, electronic algorithmic asset, like m set, Morgan Stanley, etc. So electronic access to trading. So typical services of prime would offer you we have our own exchange,
00:15:08
Speaker
So that's a venue for trading cryptocurrencies. We have a custody offering in Hong Kong. So custody is obviously the safekeeping of these digital assets. It's like, was it born identity or James Bond or something? It's like,
00:15:22
Speaker
military grade, Faraday cage, all this sort of stuff going on. So you need to be Tom Cruise to be able to even get in there. And then when you get in there, you can't do anything, but that's that custody offering. And then we have a SAS business, which is basically a software business where we, where we white label our tech and IP and work with institutional partners. That's really interesting because it basically sounds like you're a big investment bank, but for crypto, just to sum it up really quickly. Yeah, exactly. Or like a broker, like a well-developed, you know,
00:15:51
Speaker
broker that offers all these sort of institutional services. So yeah, a good example would be an investment banking might have a stock bar lend desk. We have a coin bar lend desk where you can lend your coins. We tried to take that blueprint from investment banking, which has worked for a very long time and apply it to digital assets.
00:16:09
Speaker
Yes, that's super interesting. And I assume as we progress in the digital asset space, more firms will try and copy this mandate because it really is a growth investment at the moment.
Need for Global Regulatory Standards
00:16:20
Speaker
And we touched on it a little bit before, but I would love to get your views on where you see the next steps for the industry on that regulatory uncertainty, which I think may be causing a bit of an overhang on the asset class, preventing that uptake of these types of assets.
00:16:36
Speaker
Yeah, no, totally. Yeah, so we've built the firm from the ground up to be a regulated entity that can, as I said, work in a regulated environment and deal with regulated counterparts. So regulation is always at the forefront of our minds and
00:16:51
Speaker
We thrive in a regulatory environment. The interesting thing about crypto, digital assets, is it's global by nature and it's cross-border. You've got different jurisdictions approaching this in very different ways. In order for the mainstream moment to happen, you probably need, from my opinion, you need a global synchronization of
00:17:11
Speaker
the regulation across all these different countries so you have common standards around you know reporting all clients irrigation of assets or everything best market practice all this kind of stuff and best protection personally you need that to be in sync in order for things to really take off but you see major governments around the world including australia that working on this problem and it's a trend that is only moving one direction so straight for example there's
00:17:38
Speaker
consultancy paper with the Treasury at the moment is working through the Treasury Department on how Australia should regulate digital assets. Hopefully by the end of the year that can be firmed up and get passed as law. Maybe next year that'd be great and you see in the US as well everyone looks the US in the market so if the US can get some clarity around its regulation that's going to probably help other countries speed up on their own but I say Australia in itself is doing a really good job and it's probably a
00:18:06
Speaker
one of the forefront pioneers or if you want for a better word or in sort of the regulatory space but agree with you in order to this whole space this environment everything to take off and people to get more confidence in the industry and big end of town to deploy more capital we're going to need the regulatory piece to solve but i think it's coming in two years time the regulatory landscape will look very different to what it is right now and as i say all the noises seem to be promising coming from you know from what we hear and
00:18:33
Speaker
you're seeing baby steps, but things moving in the right direction. It's interesting when you say kind of global set of standards, because we're seeing a bit of that in the ESG market as well, kind of global best practice or global adoption of reporting practices. So it's interesting that's coming into the crypto space and probably makes sense given, as you mentioned, it is very much a global cool. And it's also kind of interesting in the context of, you know, we did see a bit of de-globalization
00:19:00
Speaker
since the pandemic with concerns around energy security and supply chain disruption. But on the other hand, we're seeing this kind of globalized adoption of regulatory standards. So it's just an interesting contrast. But taking a little bit of a different step now, we've seen quite a lot of dislocation in the crypto markets and some downward pressure on
00:19:22
Speaker
digital assets and I guess they've kind of called into question some of the risks around solvency of some of the key market participants so I guess what is your view on this and also how would OSL protect itself and its shareholders from these types of markets if you can do that? Yeah sure it's been a interesting couple of weeks and I think you've seen some people have said this is like crypto Lehman moment but you've also had the macros or
00:19:48
Speaker
picture deteriorating with the rate rises and and sort of supply chain issues and sort of risk has sold off and crypto has kind of got the babies in front of the bar for water but yeah so it's coincided with some of these companies going under so from an OSL perspective as i said before the top we run a very conservative approach to this space so we were not impacted by any of the the tokens or companies that you may or may not have read about in the press just because we have very prudent risk management policies and
00:20:17
Speaker
very strong kyc policies etc etc so we hope to come through this sort of what's that wobble unscathed and actually much stronger but looking through to the the market you know most crypto people quite battle-hardened and used to 30 40 50 percent pullbacks anyone point over the last decade or so so your typical crypto
00:20:39
Speaker
enthusiast let's say these kind of pullbacks and the resiliency is in the dna but you know i say look at the border picture look at the growth look at the stuff that's happening around the regulation look at the institutional adoption people trying to come to market and build infrastructure i think the park is is a positive one is moving forward i think this recent mom for six weeks has been a bit of a
00:21:03
Speaker
bit of a temporary blip but we and I and everyone else we do see is a sort of a necessary sort of evil if one for a better word to create stability you know there's a lot of leverage in the system it's now been flushed out people going to take KYC and risk a lot more sensibly and be more prudent around those things and hopefully the industry builds on this happening and becomes that stronger.
00:21:25
Speaker
That's interesting that you're saying it's a very leveraged play and this is a reset. That's an interesting way to look at it. We are still at the infant stages of these types of assets, but are there any historical patterns that you can point to that suggest how digital assets should trade through a cycle?
00:21:42
Speaker
You know, initially Bitcoin was potentially thought of as an inflation hedge, but in this highly inflationary environment, it hasn't really held up very well. So is there anything we should look to or point to on how this asset class has traded in the past? Yeah, sure. Because people would typically talk about digital assets or crypto currencies. Bitcoin's probably the main one you look at. It's the longest serving and it's half of the whole entire market cap. So it's right to look at Bitcoin.
00:22:11
Speaker
But it's still very TV young, just over a decade old now. Bitcoin, the Genesis block came out. And so you compare that to other assets. It's really like the baby in the classroom kind of thing. But they're all still finding their feet. Even Ethereum, it's probably the most popular smart contract platform. But again, it's
00:22:30
Speaker
You know half a decade or more it's like people take old so it's very very young and these things sometimes do tend to trade like risk on assets and sometimes they don't sometimes you see bitcoin is going to like a ninety nine percent correlation with the nasdaq and the s&p until it doesn't and then it just does its own thing and you see that the moment.
00:22:51
Speaker
And people do watch the correlations, the short term and long term correlations quite closely. But it will be super correlated until it's not correlated. And then the narrative changes. So yeah, it's pretty interesting. The market we are seeing at the moment in crypto does have a lot to do what's going on with traditional markets, especially what I mentioned earlier in the truth. The equity markets, the macro environment, the central bank environment we're in, regulations come in. But yeah, I think regulation and that sort of macro
00:23:19
Speaker
be the biggest influence on the market in the next couple of months. And they're crypto companies that have good corporate governance, got good risk management strategies, they've got good businesses, they're going to come out a lot stronger. And we are, you know, so we want to be in that basket or that category. And our philosophy remains unchanged. You know, we want to keep delivering
00:23:39
Speaker
a market-leading institutional service for our clients, focusing on regulatory issues, risk management, compliance, et cetera, et cetera. So yeah, it's a funny one. To some, I would say given how young this space is, it kind of flips on and off in terms of like a correlation. So it's definitely, you can't just sort of set and forget you have to keep an eye on things and sort of trade or risk manage or size your positions accordingly to what's going on
Institutional Engagement with Digital Assets
00:24:07
Speaker
at the time.
00:24:07
Speaker
Mark, can you talk a little bit about, you know, there's regulation into the space, increasing interest, but perhaps what also might drive a step change is entrance from other large financial institutions. But obviously, typically, given their history, that they're a little bit less willing to take on risk, particularly in this asset class. But we are seeing some financial institutions start to dip their toe in into this space.
00:24:32
Speaker
Do you think there's going to be a transformation in how these businesses are thinking about digital assets and whether you think that this will start to drive some revenue streams for the bank potentially, some additional diversification?
00:24:45
Speaker
Yeah, sure. No, and good question, because we're in a really good position to comment on this. As I mentioned throughout this session, we're laser beam focused on institutions and professional investors, etc. So some of our typical clients would be banks. And we've seen from what it was like five years ago, three years ago, two years ago, two years ago, it's definitely changed. And these regulated entities have definitely come into the market. You can see this, we have like a landmark JV with standard chartered in
00:25:12
Speaker
Europe so that was formed last june in the uk under the brand zodiac markets so that's like a watershed moment in europe for a sort of an institutional play by a very well or a household name like standard chartered and also and prior to that we have a public information and so dvs is a client of ours and we work closely with them so we provide
00:25:35
Speaker
a lot of the exchange infrastructure that they use for their crypto offering in Singapore. So clients like this are just part of the roster of the top tier institutions that we work with globally. And despite the market conditions, as you say, the conversations we're having, I'm not seeing a single institution flinch at the current market conditions.
00:25:54
Speaker
They're doubling down on the narrative. They're doubling down on the build, the manpower. They're coming to market and they're setting up the infrastructure to be able to do so. Even during this volatility moment, you need to see inbound inquiries from high-network individuals, brokers, banks, fintechs, everyone else under that banner. We want to figure out how to enter the cryptocurrency or digital asset market.
00:26:18
Speaker
saw last month, JP Morgan came out and said cryptocurrencies are now their preferred alternative. They had a price forecast on Bitcoin. I don't know if it would be correct or not. And you also seen these other bulge bracket investment banks all setting up digital asset research desk or research product. It won't be long before a lot of them have traded desks. So yeah, it's one way and the horse has bolted in my view and it's only going to go in one direction.
00:26:42
Speaker
What you said around people doubling down is quite interesting because it's not necessarily what people think is going on at the moment. So it's an interesting insight that the interest is still out there with those market movements. And probably that makes sense given that, you know, they've significantly rerated and that may make an attractive entry point or be trading opportunity. So it's insightful to hear that people are still interested in this space and taking an opportunity while it presents itself.
Exploring the Metaverse
00:27:12
Speaker
But taking a slightly different turn here, and this is a little bit of a selfish question because we really want to understand this, but we're hearing a lot about the metaverse. Can you please briefly explain what this is, how people might be able to get into the metaverse, how it prevents an investment opportunity, and how that kind of fits into the whole digital asset space?
00:27:32
Speaker
Yeah, sure. A bit of a buzzword. I'd say the last sort of six, 12 months metaverse and it's really sort of captured public's imagination. That's along with NFTs. I do think that the futuristic vision of the metaverse does seem to be like a utopian digital world. And I don't know if you've seen the movie Ready Player One by Steven Spielberg, but that's
00:27:52
Speaker
I think that's what most people would like to think or envision the metaverse to be. You can get in your unicorn suit and ride on a spaceship to some far galaxy to trade and eat in some cafe or whatever it might be. But I think in reality, the metaverse at the moment is people trying to build things like that, of course. But in reality, any sort of digital realm or interface or social network where people spend their time electronically. So a good example of that could be
00:28:22
Speaker
on twitter if you're on twitter all day or instagram all day in a sense you're in a digital network right you're in a digital world you're not in the real world at that point you're not present you're focusing your attention in your time and your value propositions are all directed towards that thing right so in a sense these are the original meta verses and computer games as well as a good example whether you're playing fortnite or call of duty online or whatever it is
00:28:46
Speaker
That is a sort of metaverse as well, right? You're there, you're interacting, you're talking to friends, you're spending time away from the real world. And what's quite funny is this younger generation, actually, they spent so much of their time in this digital realm that they did now there's an acronym in real life, like IRL, quote unquote, like, that means they separate their online world from their physical. So it's pretty exciting. It's definitely a generational bit of a generational divide because you probably got
00:29:15
Speaker
people over 14 or if you're in 40 you might have some kids you're playing around you kind of get it but if you're sort of 50 and above then you might be like i don't get this because it's not native to that demographic to be interacting but if you're 20s or younger then you spend so much of your time online right so there's companies now that are building these virtual worlds and there's some of them being built on the blockchain and there's famous ones like sandbox i think hsbc launched a branch on sandbox recently snoop dog held a concert
00:29:44
Speaker
This is a virtual world that you can go and hang out in and it's built with blockchain technology, but yeah, so there's what's reality right now and it's kind of some of the graphics aren't great in the ones that are trying to be the universe is obviously the gaming industry, but what I really think is over the next few years, you'll see an explosion in this sort of like the intersection of gaming VR.
00:30:06
Speaker
cryptocurrencies, the entertainment industry, retail, luxury brands down to your Woolworths or your supermarket, all colliding into this metaverse. And it will be augmented reality will be part of that as well. So yeah, metaverse is everything that's not in real life. But how it unravels would be interesting. But yeah, it's pretty exciting to see what's going on at the moment.
00:30:30
Speaker
I'm so curious to see if I will be involved in the Metaverse at some stage, because I don't think I've gained since Sims back in 2008. It would be interesting to see if it becomes, you know, intertwined into daily life, because I'm definitely not a gamer. But I'm sure there's plenty of people out there who are, which presents a great investment opportunity. But at the moment, there's definitely still a segregation between real life and virtual worlds.
00:30:55
Speaker
Yeah, some are saying the metaverse is the next. I don't have the quotes on me. I can forward them to you for your show notes. But quite a few people come out in the last year or so saying the metaverse is like the next trillion dollar opportunity. The GDP of the metaverse is going to surpass many in real life countries. It's quite crazy.
Sustainability of Digital Assets
00:31:15
Speaker
Yeah, that's fascinating.
00:31:17
Speaker
So then again, turning back to my favourite topic on ESD and sustainability, obviously the blockchain in which Bitcoin is founded on is quite energy intensive too because you have to mine those Bitcoins and that uses a lot of energy. Typically that energy source is coming from traditional energy sources, not necessarily renewables.
00:31:38
Speaker
How can we address this issue with digital assets? And is it across all digital assets? Because I know that there's some cryptocurrencies that are more energy efficient, but also any other sustainability issues that we maybe should be thinking about when investing in this asset class.
00:31:55
Speaker
Yeah, it's a valid question. It's got a bit of press this year. I'd say for your listeners who may be not super familiar with crypto, just to digital assets, just give them a bit of a primer. So in crypto currencies or crypto technology or cryptography technology, blockchain technology, in essence, there's two main types of blockchains and the technical term is like the consensus mechanism. So how do you arrive at the next block?
00:32:21
Speaker
How do you all agree on what the next block is going to be? Because that's what the blockchain is. It's just like a ledger that's continued creating new blocks of new information. You can see the historical and it's moving forward in time kind of thing. So there's two types of consensus mechanisms, proof of stake and proof of work. So proof of work is what Bitcoin is based upon.
00:32:39
Speaker
essentially requires computing power to solve a really hard algorithmic problem to complete the next block cycle and then the miners the guys doing this and they get the Bitcoin as a reward for their efforts right now proof of stake is what got a lot of traction
00:32:55
Speaker
Green publicity let's say in the last year or so and it's what? Ethereum has been moving over towards and a lot of the other sort of layer ones using and this is a different way of doing things But you you don't need to create this or have this algorithmic problem or this proof of work What you do is you have your assets on the network you stake them as an algorithm decides but essentially by pledging these assets back to the network and
00:33:20
Speaker
You have like a right to the next block or battle and validate what the next block will be like so it doesn't require that computing power that intensity. So a lot of people started to come out and say you know what is the carbon footprint of bitcoin mining and things like this, you said that the main input is electricity and that's gonna come from somewhere.
00:33:40
Speaker
Now, I don't think anyone's really done the maths or the analysis in it to a level where you could say one way or another, this is like the carbon footprint or this is the impact of so many different variables. But what you have seen is as a result of this, you're seeing a lot of new businesses come out with sort of a green Bitcoin
00:33:59
Speaker
Mining angle to things so trying to get their electricity from renewable sources. So whether that's like geothermal solar hydro You've seen a lot of these companies set up. There's a couple in Australia. You're seeing a few like British Columbia's a big
00:34:13
Speaker
Canada is an area of a lot of them and obviously if you can mine from a sustainable energy source then obviously that's going to be better right. So I think that's definitely a trend and that's a trend like I personally welcome and it's interesting you know as you saw your ESG had on blockchain technologies actually now be a lot of people there's a lot of Aussie companies doing this trying to come up with using the blockchain to tokenize carbon so you can have the carbon credit and you can have that that immutability as in
00:34:41
Speaker
A lot of people are skeptical in the market about carbon credits and the origination when they retired and the people rehypothecating. Some are valid in one country and not another. It can be quite ambiguous between different regions and domiciles, etc.
00:35:00
Speaker
blockchain technology and digital asset technology, et cetera, can be quite interesting for this space because you can have this like permanent record of this carbon credit that exists on blockchain. I mean, it's retired, it's gone. You know where it's coming from, et cetera, et cetera. So I think you're going to see an explosion in this stuff and you're going to see new venues come up and a big drive in this industry towards those kind of technologies. I'd also say as well, like OSL, it's like
00:35:23
Speaker
dear to our hearts. A lot of our founders take really passionate about carbon impact and, you know, climate, et cetera, et cetera. So as a company, we've got high NGOs, you know, we've got servers, et cetera, et cetera, running globally. We're really big on like net zero, like supply chains, et cetera. So, you know, we wanted the first to, um, publicly come out with like a carbon neutral footprint in 2020. We fully offset what our carbon footprint's like 28, like for the three years prior.
00:35:52
Speaker
we've sort of retroactively looking to forward neutralize that as well. So we have an ESG report online I can put in your show notes as well but like so it is a big topic I don't think it's like black and white on this is bad this is good but I definitely think as an industry people are taking it seriously and trying to sort of move in sort of the healthier or sensible direction by you know if you can mine with renewal energy source that's probably superior to not right so
00:36:16
Speaker
Yeah it's definitely interesting but again the industry itself is quite new, this is quite a new topic in a new industry so there's gonna be a heaps of involvement and development and progress I would say over the next couple of years because a lot of people working on this stuff so it's quite exciting as well.
00:36:31
Speaker
I think that's key that there is going to be so much development in both of those spaces in the next 10 to 20 years. I mean ESG is obviously at the forefront of most investors' minds these days, and I'm sure it's also going to apply to this asset class and trend as well.
Mark Herriot's Career Journey
00:36:46
Speaker
So before we finish off this episode, Mark,
00:36:49
Speaker
I know you've had quite an interesting career change recently from a large investment bank to working at digital assets. What made you want to do the switch and how did you become so passionate about this area?
00:37:01
Speaker
Yeah, sure. Crypto is definitely like a bug that gets you. It doesn't want to get you. It's hard to know what life was like before, but I started the journey pretty long ago. I think it was about 2011. I came across Bitcoin and it was trading about 30 bucks or something like that. That was around the time when a lot of the early exchanges were being formed. I was lucky because I was in Hong Kong and it was kind of a hotbed for this stuff.
00:37:24
Speaker
Love friends went on to found like successful exchanges and things like that. So kind of always kept an eye on it Unfortunately, I sold most my Bitcoin a long long long time ago and that's pretty why I'm still you know Yeah, I remember when he got to a hundred and I was like, oh, that's crazy. But um, yeah, look at us now
00:37:44
Speaker
And it always kept an eye on it. I kind of missed Ethereum, like when Ethereum still first came out busy with career and life and family and stuff like that. But 2020, summer 2020 was like known as DeFi summer. And that was basically when you saw a lot of new applications being built on Ethereum. And a lot of them had like a financial sort of DNA to them. So like lending platforms, trading platforms and all this kind of thing as DeFi summer. They were doing really cool stuff that probably people hadn't seen before.
00:38:14
Speaker
And then fast forward to last year, you saw a lot of these alternative layer ones come about like Solana, Terra, Avalanche, things like this. And they're trying to take what Ethereum had done and take it one step further. And it was really exciting times. And I'm a bit of a geek. Yeah, I come from a different background. I like
00:38:32
Speaker
technology etc and it's just really captured my imagination. So this was all against the backdrop of Covid and we saw record stimulus packages being deployed by major governments around the world and so that really accelerated the digitalization of our lives and because people were sending more and more time online before so I just thought it was an opportune time to move over. I really enjoyed my time at MS, got to work with some great people and then on some really interesting projects but
00:38:58
Speaker
I'm quite entrepreneurial by nature and just wanted a new challenge. Also one where I had more sort of involvement across every facet of the business. So luckily I managed to figure things out with our CEO Wayne Trench and my boss Matt Long up in Hong Kong and Singapore and we got all the stars aligned and yeah that was it. Rest is history.
00:39:17
Speaker
That's awesome. And you've obviously had quite an interesting career. I'm sure there's a lot of people in investment banks who are looking for something a little bit more entrepreneurial or to do something a little bit different in an alternative asset class. So we would be really interested to hear about your top creative that you could share with us, please.
00:39:35
Speaker
Yeah, sure. And as Clooney probably knows from my time at MS, I really used to enjoy like mentoring or trying to not even mentor, that's probably too strong a word, but get involved with like the junior guys and try and help out where I can.
00:39:48
Speaker
And I had quite a really lucky or really fortunate to have a really interesting career. And I always tell people the same thing. It's like whatever job you are at right now, you got to give 110, 120%. You got to give it your all, even if it's not exactly what you want to be doing. Because if you're not giving it all, then you can't put yourself in a position to have conversations about mobility or things like that because people won't take you seriously. So first thing, whatever you're doing, just do it as best as you can. Leave everything at the desk at the end of the day. Put everything into it.
00:40:18
Speaker
So that's first thing, then you got to network, you got to network as much as you can, any given opportunity, because you just don't realize when you're going to bump into these people again, all these opportunities are going to rise. So like the old saying that you make your own luck, that often comes from networking.
00:40:33
Speaker
then be polite and as easy to work with as possible like be the person people want to have a beer with or go and get a coffee with don't be the person people try and avoid because you spend so much time with these people during the day so if you are nicer to be around people want to spend more time with you which invariably means you stick around like longer and get the options when they come so if you do all the above then i think you can put yourself in a position to be don't be afraid to ask what
Career Advice from Mark
00:40:59
Speaker
you want
00:40:59
Speaker
but only do so when you really put everything in giving it your all. Seize every opportunity and then if you you feel like you've got like the clatter or the sort of leverage on your side then don't be afraid to put your hand up and ask for a change whether that's overseas or internally you'll do something different like if you don't ask you'll never get but you've got to sort of earn the right to ask so I would say that's my top career tip.
00:41:23
Speaker
That's awesome. Thanks, Mark. I've really learned so much throughout this episode, and I know that our listeners will as well. We can't wait to see what the future brings for both yourself and OSL. And as we've really touched on many times in this episode, it's clearly an area for investment that is still in its infancy, but really taking off at a J-curve speed. And I think we've recorded this episode
00:41:47
Speaker
in the metaverse to a degree, given we're all electronically recording from our geographical distances. But hopefully next time we can chat IRL. So thank you so much for coming on the show, Mark. It was great to chat and can't wait to speak again soon. Awesome. Great to chat and thanks for having me on.
00:42:04
Speaker
Thank you for listening to the Alpha Females Invest podcast. If you liked this episode, we would love your support on Instagram. You can find us at Alpha Females Invest. You could also leave a podcast review, but most importantly, please keep listening. See you next time.