Alan Lane, CEO of Silvergate: Why Bitcoiners Shouldn’t Hate Banks

Alan Lane is the CEO of Silvergate Bank. In this conversation, Alan and Anthony Pompliano discuss the Silvergate story, how Alan first discovered Bitcoin, how important the bank has become to the crypto industry, what Alan feels is important for the future of banking, and why Silvergate recently went public. BLOCKFI-----BlockFi allows you to keep your crypto, put it up as collateral, and receive a USD loan funded directly to your bank account. They do loans ranging from $2,000 to $10,000,000, and they're perfect for helping you reach your financial goals of all sizes. Visit BlockFi.com/Pomp to learn more about putting your crypto to work without having to sell it. CRYPTO. COM-----Crypto.com is a pioneering payment and cryptocurrency platform that seeks to accelerate the world's transition to cryptocurrency. With the vision of "cryptocurrency in every wallet", the Crypto.com App offers a full range of financial products with competitive pricing, well designed UX and high security. It is the best place to buy, sell and pay with crypto. COINMINE-----The Coinmine One is like an Xbox that turns your electricity into Bitcoin. You just plug it in, connect to wifi, and tap on the crypto you want. It’s so easy anyone can do it. Everything is controlled from the Coinmine mobile app and the Coinmine keeps getting better with over the air updates that add new coins, features and services to your Coinmine. Visit coinmine.com/pomp to get a Coinmine and earn crypto for powering a new world. ETORO-----This episode of Off the Chain is sponsored by eToro, the smartest crypto trading platform, and one of the largest in the world. Join 11 million other traders and create an account at etoro.com and build your crypto portfolio the smart way.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Anthony Pompliano?

  Whoa. Before we get started, I want to go over the four sponsors for this episode who make all this possible. They're fantastic, so go show them some love. The first is the best URL in the industry, Crypto.com. They're a crypto platform with one goal: driving mass adoption. That's why we're all here, right? To get every human on earth a digital wallet and to get them using digital currencies. Crypto.com is helping people do that through buying, earning, lending, and a new card payment. Everything you could want is at Crypto.com. They've been longtime supporters of Off the Chain and recently announced a new exchange, so go help them out, download their app from the App Store, or visit Crypto.com and tell them POM sent you. There's nothing better in the world than a company helping to drive global adoption

• 0:43Anthony Pompliano?

  of this new technology. Another part of global adoption is making sure that we secure the various blockchains with computing power. Coinmine has built the best consumer experience in mining, hands down, no competition. If you want to help secure the blockchain and get started in mining, you can go to Coinmine.com/POM, order a Coinmine, it'll arrive at your door, and you simply take it out of the box, plug it in, and connect to your Wi-Fi. You'll be mining your favorite crypto in five minutes or less. It is honestly magical. I have one running right now here in the office, and it's super quiet, it's got no heat, and every person that comes in the office asks, "What is that?" Every single person asks. It's a Coinmine. The best part to me is that the Coinmine comes with a mobile app that's super slick, and the company continues to push over-the-air updates to the device that add

• 1:25Anthony Pompliano?

  functionality, add tokens that can be mined, or increase the efficiency of the device. Similar to how Tesla does car software updates over the air, Coinmine's sending these passively to thousands of Coinmines around the world on a periodic basis. Pretty damn cool. When Farboot and the team pitched me on the idea of an Xbox or PlayStation-like box that could mine cryptocurrency in your home, I was immediately sold. I invested in the business, have a device personally, and keep telling people to go to Coinmine.com/POM, so they can save a lot of time if they want to get started mining today. CoinMine has a partnership with our third sponsor for this episode, BlockFi. BlockFi is one of my favorite companies in crypto because they allow users to deposit their assets in a deposit account and immediately start earning interest.

• 2:07Anthony Pompliano?

  Think about it, if you keep your digital assets on an exchange or in cold storage, you aren't benefiting from any yield on the asset. With BlockFi, they allow you to deposit crypto and then get paid interest on a monthly basis in crypto. Deposit Bitcoin and want to get your interest payment in ETH? You can do it. Deposit Bitcoin and want to get your interest payment in Bitcoin? You can do it. The rates at BlockFi are currently some of the best in the industry. You can earn 6% interest on Bitcoin and you can earn up to 8.6% APY on GUSD deposits. I'm an investor in the company and think BlockFi is building really important and compelling infrastructure. So go check them out at blockfi.com/pomp. Again, that's blockfi.com/pomp. And that brings us to the last advertiser of the episode, eToro.

• 2:51Anthony Pompliano?

  These guys have absolutely crushed it over the years. Their founder, Yoni, was one of the original Bitcoin OGs and has been ahead of almost every trend in crypto. He built eToro to help people buy, sell, and trade cryptocurrencies. But he added a few twists: social trading, copy trading, and virtual trading accounts. Social trading is a feature where every asset available on the platform has its own separate social feed where people talk about the asset, share trading ideas and analysis, and even include various charts or graphs. Virtual trading accounts is targeted at beginners. If you're just starting out and want to try trading with play money, eToro will give you a virtual account with $100,000 in it to test, learn, and get comfortable. And so, then that brings us to copy trading, which is by far the coolest feature. This allows you, as a user, to select any other user's portfolio to copy.

• 3:36Anthony Pompliano?

  If you see someone on the platform you like, you can set your account to mimic their trades. They buy Bitcoin with 5% of their portfolio? Your portfolio buys 5% Bitcoin. They sell 50% of their Ether position? Your portfolio does the same thing automatically. Copy trading is awesome, so go join the 10-plus million other traders on eToro and start trading all the most popular cryptocurrencies today. They're one of the largest companies in the space and you can get started by going to etoro.com. Again, that is etoro.com, where the entire team is ready to get you started in just a few clicks. And don't forget, go subscribe to the Off the Chain daily newsletter. You can go to offthechain.substack.com. I write a letter of news, analysis, and opinion every morning that goes out to more than 40,000 investors. See you there.

• 4:22Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to Off the Chain, simply the best podcast in crypto. Let's kick this thing off.

• 4:33Anthony Pompliano?

  Alan Lane is the CEO of Silvergate. In this conversation, we discuss the Silvergate story, how Alan first discovered Bitcoin, how important the bank has become to the crypto industry, what Alan feels is important for the future of banking, and why Silvergate recently went public. Alan is an OG in the Bitcoin and crypto industry. I always enjoy talking to him, so I hope you really enjoyed this episode as well. Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow

• 5:17Anthony Pompliano?

  a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only. Alright guys, bang bang. I'm sitting here with the man, the myth, the legend. Alan is here and just first of all, thank you so much for coming to do this. I know for those that don't know, Silvergate recently went public and he has been on the road for two plus weeks telling story after story and fundraising. So he's pretty topped out at this point, but thanks so much for coming to do this.

• 5:47Speaker 02

  Yeah, absolutely happy to be here. Thanks for the opportunity.

• 5:50Anthony Pompliano?

  For sure. Let's get started with just your personal story, kind of what you did pre-Silvergate, then we can get into the crypto stuff.

• 5:58Speaker 02

  Sure. So actually started in banking as a teller while I was in college. And so over the last almost 40 years, I've done just about every job that you can do in a bank.

• 6:09Anthony Pompliano?

  Amazing.

• 6:10Speaker 02

  And I did spend some time in private industry in the 1990s in both retail and manufacturing. And so actually ran companies that needed banking services and then in the late 90s got back into banking. And it was a business bank. And so really liked being back on the Other side of the table helping businesses and as we were just talking about. One thing I know being having run a business and then being back in banking businesses just want their bank to work. They just don't want to think about it, right? And so our whole goal is if we can just make it seamless for our customers to. You know, to kind of do their business and not have to worry about their bank. But anyway, so.

• 6:53Speaker 02

  Done that for most of my career. I joined Silvergate in two thousand and eight. Right at the height of the financial crisis and what attracted me to Silvergate was it was. A very clean but small platform that I thought was going to be really good to build a foundation on. And little did I know that around that same time that I was that I was joining. Silvergate, there was also this this this white paper, you know, being written about Bitcoin. I didn't know anything about it, you know, and I'm not a cipher punk. And so we just went about building the bank and because we were clean during the financial crisis coming out of that. We could lend when a lot of other banks were struggling and so.

• 7:39Speaker 02

  So for the first few years, we were growing like crazy on the asset side, making loans. And ironically, what we were struggling with was we were struggling with growing the deposit side of the balance sheet. To fund our loan growth.

• 7:51Anthony Pompliano?

  What why is that a challenge at the time?

• 7:54Speaker 02

  Yeah, it was really just just because first of all, Silvergate was not well known. And Silvergate didn't really have a deposit franchise, if you will. We had four branches, kind of spread out all over Southern California. Didn't really have a brand name and and then at that time, if. If if you were a business and you had a banking relationship. You didn't want to lose it because there was so much turmoil, you know, coming out of the financial crisis and so it was really difficult. To kind of, you know, shift people's mindset to leave their bank and join a new one.

• 8:32Speaker 02

  And and so, you know, and that's certainly understandable. So we just kept on lending and, you know, we were finding creative ways to fund the loan. Um, you know, opening CDs and, you know, doing a little internet banking and some of that, you know, some of that stuff. Um, and then along the way in two thousand thirteen, I started reading about Bitcoin. And, um, what I, and it was just intellectual curiosity at that point. I wasn't really thinking about it and how it might intersect with Silvergate. It was just kind of in my spare time, I, you know, I, I read stuff. And, and, um, and we were looking for deposit niches for the bank. And I was reading about Bitcoin and I was reading that there were companies that were being formed

• 9:17Speaker 02

  to provide infrastructure to this new thing called Bitcoin. It wasn't called crypto, you know, it wasn't, you know, it was Bitcoin only at, at the time. And, um, and so I learned that there were companies that were raising venture money. So they had deposits, um, they wanted to put them in a bank. Silvergate's a bank and they were getting kicked out of their banks. And, and so obviously there was a, a reason they were getting kicked out and, and it was the perception of risk, right?

• 9:47Anthony Pompliano?

  And, and talk a little bit more about that perception, right? Cause I think this is a key piece where, uh, if you don't pay attention to Bitcoin and crypto on a daily basis, any other industry in the world, maybe other than cannabis, banking is, you know, readily available if you're in a developed world country.

• 10:04Anthony Pompliano?

  As you're saying, that wasn't true in two thousand and thirteen and actually it wasn't true for a pretty long period of time.

• 10:11Speaker 02

  Right.

• 10:11Anthony Pompliano?

  Why were other banks getting rid of these crypto or Bitcoin companies? And what was that risk that they perceived?

• 10:17Speaker 02

  Sure. So there were, there were two things, um, from a regulatory perspective. One was just a, a general sense in the United States where banks were kind of de-risking money service businesses. Um, check cashing companies, payday lenders, um, you know, there, there was, there was this, this whole kind of movement in the, from the, in the larger banks away from providing banking services to those money service businesses. And if you think about, um, companies that were being formed at, at the time, you know, example I use often is Coinbase, right? So Coinbase, um, is a money transmitter and money service business. And, um, so they were struggling to find bank accounts because lots of banks were kind of just.

• 11:01Speaker 02

  They were leaving that that segment. So that was that was one reason. The other reason was because of the whole concern about anti-money laundering, BSA. And that really has more to do with kind of terrorist financing, you know, bad actors. And, you know, it was right around that time that Silk Road happened, right? And and so, big concern that the primary use case for Bitcoin at the time was for, you know, nefarious activity, right? And and what people didn't really understand at the time was that, well, you know, if you're using Bitcoin for, you know, that kind of stuff, you've got a higher probability of getting caught, right?

• 11:43Speaker 02

  And and so, that that was a little bit of an aha moment for us early on. Because when I, so I was reading about Bitcoin, read about Silk Road, read that companies were getting kicked out of banks. And I thought, well, here, there might be an opportunity for Silvergate. But the first thing, you know, we're a we're a regulated financial institution. We're a state-chartered bank in California. We're a member of the Federal Reserve. Our deposits are insured by the FDIC. And so, we had a lot of regulatory oversight and still do. And so, the first thing I did was was called our compliance officer. And I said, hey, have you heard about Bitcoin? And the great thing was she had.

• 12:23Anthony Pompliano?

  Oh, really?

• 12:24Speaker 02

  Yes. So she's now our chief operating officer. Her name is Kate Frere. And and Kate immediately sent me articles, you know. And and so, and it's so cool because at Silvergate, we just, we've got this culture and and it's just a whole bunch of folks who are curious, who are, you know, reading about stuff in their spare time. And so, you know, so we started a dialogue. And I said, well, do you think we can figure out how to bank these companies? Because it might be a source of deposits. And that was as simple as it was. We've become a lot more, you know, a lot more sophisticated in our account offering to our customers. But in the early days, it was just-

• 13:00Anthony Pompliano?

  It was just, here's a niche that is, no one else wants to serve. If we can figure out how to serve them, but also kind of pay attention to the risk.

• 13:07Speaker 02

  Yeah.

• 13:07Anthony Pompliano?

  Then we can drive deposits, drive deposits, we can continue to fund loans, grow assets.

• 13:11Speaker 02

  That's right.

• 13:11Anthony Pompliano?

  Got it. And so, let's fast forward a little bit. As you grew that business, uh- The first customer is somebody that you guys had actually known for a while. Let me tell the story a little bit about who that first customer was and how it all came together.

• 13:24Speaker 02

  Yeah, so it's funny how things in life work. So probably two or three years previous to that, I had met this company by the name of Second Market. And Second Market was founded by Barry Silbert. And his claim to fame, or the way I heard of him, was they were making a market for illiquid securities, kind of pre-IPO. So making a market for Facebook stock before Facebook went public, for instance, okay? And the reason our paths crossed, and I didn't meet Barry at the time. I met someone who worked for him. But I think they had a thesis that, okay, where are there other markets

• 14:09Speaker 02

  where there might be illiquid securities, you know, illiquid ownership? People that want liquidity. And there's all these privately owned, independent banks across the country. And so that's how we met. Silvergate, up until a week ago, was a privately owned company. And so we met, we talked about maybe doing something together. And that never really took off. Little did I know that, I think Barry was already kind of starting to pay attention to Bitcoin. But the intersection there was, I think Second Market got to know us as a bank that was maybe willing to look at things a little differently.

• 14:54Speaker 02

  And we've just kind of had this process, or this methodology of looking at risk. What is the perception of the risk versus the actual risk? Because oftentimes, there's a, and that's the whole thing about Bitcoin too, right? But if the perception of risk is here, but you can mitigate that risk and the risk is really here, then all of this is opportunity.

• 15:20Anthony Pompliano?

  Yep, you talk about misprice risks all the time.

• 15:22Speaker 02

  Absolutely, absolutely. And so that's the way we looked at Bitcoin. And so in 2013, all of a sudden, we start getting referrals from Second Market for companies in the Bitcoin space. And it just coincided with us looking at it. And so... So in January of 2014, our very first customer in this space was Second Market. They're now known as Genesis Trading. And the whole, you know, Barry sold Second Market to NASDAQ and created the Digital Currency Group.

• 16:02Speaker 02

  And so what started as one account with Second Market that became Genesis is now, you know, we are their bank. And they've made a lot of investments in companies over the years. And a lot of those companies are now clients of Silvergate as well.

• 16:21Anthony Pompliano?

  It's amazing. And it's so funny how Barry and Digital Currency Group have become a very important part of the ecosystem. But in the very early days, obviously, you know, kind of being that first customer, I think probably gave you some confidence that, hey, look, at least we got one person to do this.

• 16:37Speaker 02

  Well, yeah. And the other thing that was important is because we are regulated, you know, we have to make sure that we're doing everything right. And so going and banking Second Market because of the fact that they were a broker dealer. So we knew that they were familiar with regulation. They understood KYC, Know Your Customer. They understood BSA, the Bank Secrecy Act, AML, Anti-Money Laundering, all of those things. They had to do that for their customers as well. So we looked at it as like providing banking services to another regulated company.

• 17:15Speaker 02

  But the cool thing was that we also went to school right away on understanding what it was they were doing. So in order for us to get comfortable, that, so let's say that Second Market was facilitating the buying or selling of Bitcoin between, you know, between two parties. And the US dollars were going to go across Silvergate Bank's wire system, right? So what we were doing in January 2014 is we were asking Second Market, hey, for that transaction that you're sending that wire? Provide us the blockchain address. So that because we want to do is go to a block explorer, you know, and we want to type in that address.

• 17:58Speaker 02

  We want to see a transaction that represents the dollars that's going through the bank. And I think they were they were kind of surprised that a bank was even asking that question in 2014.

• 18:10Anthony Pompliano?

  For sure. And so today, like you go from that first customer to maybe share a little bit about just like where you guys are from a size. I know in the prospectus you guys have shared a bunch of this, but more than 800 customers today and kind of just talk about where you got into with the business.

• 18:25Speaker 02

  Yeah.

• 18:25Anthony Pompliano?

  And then we can go into kind of what those products are.

• 18:27Speaker 02

  Sure. So, yeah, today we we have close to 800 customers. It started small, obviously, and I think by the end of 2000 and maybe 16, we still only had a couple dozen customers. But importantly, there were some of the the most well-known companies, you know, that still exist today. And so back in the day, you know, we we were, you know, we got to meet all the crypto OGs before anyone knew they were OGs, right? You know?

• 19:02Anthony Pompliano?

  They were just people looking for bank accounts.

• 19:04Speaker 02

  Absolutely. And and so we were just very blessed, you know, I mean, I will say there's certainly an element of luck, you know, and an element of just kind of being opportunistic. But we ended up, you know, banking some of the best, most well-respected companies in this little ecosystem. And and then in 2016, we hired the other really important person in this story for just, you know, I mean, there are first, let me say, there are over 200 employees at Silvergate who every day come to work figuring out how to just kind of kill it for our customers. You know, I mean, it's it's it's just, it's a pleasure to work with them.

• 19:47Speaker 02

  Ben Reynolds is a guy that we met. I met him in January, I think, of 2016.

• 19:52Anthony Pompliano?

  Okay.

• 19:53Speaker 02

  He knew nothing about Bitcoin.

• 19:54Anthony Pompliano?

  Like most people?

• 19:56Speaker 02

  Yeah, absolutely. And we were just looking for somebody to help us, you know, kind of what should we be doing next, right? We had a couple dozen customers, maybe 40, 50 million in deposits. The bank was about maybe 600, 600 to 800 million in assets. Okay, so deposits didn't even represent 10% of the assets at the time. And um but we had great customers and and so Ben, you know, what he did was he would just went out to our customers and said, hey, I'm new, explain to me what you do and and you know, how can we be more helpful? And it was out of that dialogue that the SEN was born. What you know, it's we call it the Silvergate Exchange Network. Most of our customers call it the SEN.

• 20:41Speaker 02

  Yeah, SEN for S E N, Silvergate Exchange Network. Absolutely, yes, thank you. For I, you know, some of the people listening, they won't get that, so you gotta clarify for them. Yeah, so um so the idea was born really out of talking with our customers about the pain points that they experienced, the friction, the banking friction, getting money into and out of the crypto ecosystem. And even though we were helping them do that, some of our customers, you know, especially the exchanges, they wanted to be able to do that at scale. Okay, so how does that work at scale? Well, you really need to build an API. And there are a lot of companies, a lot of banks in the country that have APIs for doing things like pulling an account balance or transaction history.

• 21:26Speaker 02

  There's probably less than two dozen banks in the US that actually have a transactional API that will allow you to transfer value. And and so that was the really kind of aha moment for us is that we've got a lot of customers who are actually transacting with each other, but without the ability to do that in a programmatic way. And so it's really time consuming. So first, we had to up upgrade our core data processing system, which we did in 2016. We then started building the API. And then in 2017, we started connecting people to each other, our customers to each other. And that timing, again, talk about luck.

• 22:11Speaker 02

  Because in 2017, we were really poised when the market took off.

• 22:16Anthony Pompliano?

  Yeah.

• 22:17Speaker 02

  And we went from, you know, having less than, you know, a couple dozen customers to having a little over 200 customers by the end of 17. We grew, um, we doubled the size of the bank in a year. Um, now that was the, you know, that was the bull market of 2017. Um, and

• 22:35Anthony Pompliano?

  But, but again, it's important that you guys were doing exactly what you'd been doing all along. You're offering banking services to folks that were playing by the rules, doing the right things in crypto. And at the same time, even in 2016 and 17, just like in 2013, other banks were still uncomfortable. They were still shutting people off. They were still kicking people out. And so I think when I first heard, hey, Silvergate is, you know, kind of friendly to this. It was in a, thank God we have them, right? Because where else are we going to go if there's not Silvergate? There wasn't very many options at the time.

• 23:07Speaker 02

  Sure.

• 23:08Anthony Pompliano?

  Right? And, and obviously you guys benefited from having done the work upfront and kind of being open minded. Um, and, and working with those companies and obviously doing a good job because the reputation spread and, and the business took off.

• 23:17Speaker 02

  Yeah, yeah, I appreciate that. Yeah. So, so, um, we, yeah, we, I, I still, I, I just feel very blessed that, that, that the timing worked out in such a way that we were working on this. Um, and that we were in the right place at the right time. Um, and then obviously doing the right things, um, but that gets back to the team, you know, back, back at the, at, at world headquarters, you know, of Silvergate and La Jolla. Um, but

• 23:41Anthony Pompliano?

  They're living in Southern California. They're, they're, it's cold here in New York this morning. And I'm thinking about, what are you doing here when you could be in Southern California?

• 23:49Speaker 02

  Yeah, yeah, it is a little chilly out there.

• 23:51Anthony Pompliano?

  So, all right. So anyone who's part of this Silvergate Exchange Network, talk about like, what changes for them from like a user experience standpoint and what, like what functionality, um, does the network actually give them, right? So what's the value?

• 24:04Speaker 02

  Yeah. So, so if you're a, if you're a member of the SEN, you can transact with other members of the SEN. 24 hours a day, 7 days a week, 365 days a year. And you're transmitting fiat currency, primarily US dollars, although we have opened this up for other fiat currencies as well. And your money is there instantly. Got it. So... It's like Venmo for corporations. We joke about this. One of the guys back at the office jokes that his primary role in life is to connect 1970s legacy banking technology to the 24/7 crypto market.

• 24:49Speaker 02

  But I believe, you know, we were the first bank in the world, and I'm not sure if anyone else is doing this yet, but to be able to take the legacy banking system that only operates, you know, 40 hours a week, Monday through Friday, and bring it into the 24/7 crypto market that never sleeps. And this becomes really important if you are an institutional investor, you know. And I should say this, we have an institutional focus. So when we talked earlier about the almost 800 customers, that's broken down into three categories. First category would be exchanges, OTC desks, et cetera. And then we connect them with institutional investors.

• 25:31Speaker 02

  These are family offices, hedge funds, folks that are approaching digital currencies as an asset class, okay? And so they're employing different investment strategies. And what they want to do is, they want to have confidence in their banking relationship. But then importantly, if we can make it efficient for them to use their capital to get on and off of different platforms, and not just in the US but around the world. So, you know, we started, obviously, as a US-centric operation, but, you know, we have customers internationally. And so if you wake up on a, you know, early Saturday morning, or Sunday morning, or a

• 26:14Speaker 02

  holiday, and you see that something's going on in the crypto market in Asia, and you want to put some money to work... You can do it, log into your account at Silvergate, push some money over onto whatever exchange you know you're working with, or call your OTC desk, you know, and say, hey, you know, I want to buy or sell, and you can do it just like that. And, and so it's, it's really been a game changer for our customers. And then that has just, really just kind of helped grow the business because many of our customers, they don't want to trade with others unless they're on the send. Because we just take out the friction. There is literally no friction.

• 26:54Anthony Pompliano?

  It really is a true kind of network effect, right? In the sense that, once somebody comes over, then they want all of their partners to come over, right? Once those people come over, you get more people to come in, etc. Let's talk a little bit about, kind of how you see the bank playing with crypto, right? So you built this, the send, obviously, which has been incredibly valuable for folks. But you're not a crypto company, right? You're still a legacy regulated financial institution that, you look like a bank, you smell like a bank, right? You know, you walk like a bank, so you're a bank.

• 27:26Speaker 02

  We're a bank.

• 27:27Anthony Pompliano?

  And you provide necessary infrastructure to crypto companies, right? And, and I think there's two components that are important here. One is, that connection or that support is a point of failure for the crypto industry, right? You know, we've seen in countries like India, where the regulator stepped in and said to the regulated financial institutions, you are outlawed from working with crypto companies. Well, that doesn't sound like a big deal, except for now the crypto company has no bank account to store fiat, pay employees, etc. It'd be very kind of, you know, detrimental to their business. But, do you just continue to build financial services from like the legacy world to support these companies? Do you have ambitions to go into kind of the crypto world and become more of like a crypto bank in the future? Kind of just talk to me, knowing that, you know, there's some stuff

• 28:12Anthony Pompliano?

  you can say around regulation, the regulators allow you to say and something you can't with forward-looking statements, etc. But just like, how do you see this evolving over time as you continue to support these, you know, 700, 800 customers?

• 28:23Speaker 02

  So first to touch on bank-specific regulation. We would not be able to do this were it not for the support of our regulators, right? And so the way that looked from the very beginning was in 2014, as soon as we started banking this industry, we had a handful of customers. We invited our regulators in. I can show you a presentation in the summer of 2014 that we made to the state banking department and the Federal Reserve. And it was essentially a Bitcoin tutorial. This is how Bitcoin works, you know, it was, you know, the graphics from the distributed ledger, you know, all that kind of stuff.

• 29:08Speaker 02

  But then we segmented the market, and it was obviously a very nascent market, and it still is. But we looked at it the same way then as we look at it today, which is we said, look, there's the different verticals. Some folks are approaching Bitcoin as an asset class, you know, as a new asset. Some people are thinking about it as a payment rail. You know, you can think about like the Bitpays of the world that are trying to disrupt, you know, the payment side of things. And we said, we're gonna, you know, we're gonna focus on this institutional market. And then the other thing we're gonna do is focus on other companies that are building infrastructure, you know, whether they be protocol developers, you know, miners, et cetera.

• 29:53Speaker 02

  But what we're not gonna do is kind of play in that middle space, which is the remittance space, because that's not how we're set up. We don't have a credit and debit card offering, you know, so that really wasn't where we wanted to play. But importantly, back to your question, so early on, we explained to the regulators, this is how we view it. These are the controls that we're putting in place. This is how we're monitoring, you know, KYC, AML, et cetera. And by doing that, having that dialogue with the regulators early, prior to their next exam, it allowed them the opportunity to prepare for when they came in to do their annual exam, okay?

• 30:36Speaker 02

  Fast forward now, 2014, that was first year, 15, 16, 17, 18, 19, we just finished our sixth. Annual regulatory exam, right?

• 30:45Anthony Pompliano?

  Yep.

• 30:45Speaker 02

  We're not allowed to talk about regulatory ratings, but suffice it to say, we've been doing this for six years. Our program has become a lot more sophisticated. I was telling you earlier about, you know, looking at the blockchain to look at a specific address to see a transaction. You know, that was before Chainalysis, Elliptic, you know, CypherTrace, all these other tools.

• 31:08Anthony Pompliano?

  Elementus.

• 31:08Speaker 02

  Elementus, yes, got to get them all in there. Thank you for that. So that was before all these tools were developed, which we've, you know, obviously now incorporated into our systems, right? And so our process has matured as, you know, as the ecosystem has matured. So as we move forward, you know, we continue to build our program. And then we're essentially, we're customer driven. Everything that we do is in response to our customers. The SEN was born out of customer demand, our, you know, customer requests saying, hey, this is, it's painful to, you know, the banking friction is painful and the lack of liquidity, the counterparty risk.

• 31:53Speaker 02

  And so really trying to, to smooth all that away, that's how the SEN was born. Now that we've got, you know, you know, growing towards 1,000 customers in this, in this space, our customers are saying, you know, we love the SEN for the US dollar. We love the SEN for yen, the SEN for euro, the SEN, you know, for the, you know, British pound sterling, the Singapore, the Singapore dollar, et cetera. So we're enabling foreign currency exchange, which is something that Silvergate never did in the past, right? And so, but we also recognize our customers want to do it at scale, right? They're all thinking about scale.

• 32:29Anthony Pompliano?

  Yeah, there's scale and they're global, right?

• 32:31Speaker 02

  Exactly.

• 32:31Anthony Pompliano?

  Is the two big components. This industry probably more than most has, when a business starts on day one, it's a global business.

• 32:37Speaker 02

  Exactly. So, so, so we stood up a foreign currency desk earlier this year and we're in the process of establishing all those correspondent banking relationships around the world so that, so that we can facilitate foreign currency exchange. So, so that's the most recent product that, you know, that, that, that we've added. The next thing we're working on is Credit doesn't exist in this market, right? The way it does in other mature financial markets. The concept of prime brokerage, all of these things that just kind of work in the traditional financial system don't exist in crypto. And so one of the things we're working on right now

• 33:18Speaker 02

  is the ability to provide leverage to customers who are long Bitcoin. And because of the 24/7 nature of the market and the 24/7 nature of CEN, again, I think we're probably one of the only banks in the world that has the capacity, the capability to actually do something like this. You can think of it as, you know, kind of in traditional kind of margin lending, and I'll put margin lending in quotes because we're not a, you know, Bitcoin's not a security and, you know, we're not a broker dealer. We're a bank. So we're looking at it as providing collateralized lending, which is what we do. We make loans and we like collateral.

• 34:01Speaker 02

  You know, the collateral for these loans is going to be Bitcoin. It'll be Bitcoin only for the foreseeable future because it's the only deep market, right? Yeah, most liquid one you've. Yeah, exactly. But that's something that we're in the process of launching a pilot this quarter. And so we're going to do it small to start with. The same way we got into this initiative, you know, let's get some of the very, our best customers on both sides of the CEN, right? And let's, they're already trading with each other. They're already customers. You know, they're customers of the exchange, they're customers of us. And then let's figure out how we can offer them credit. And so we're working on that right now.

• 34:45Speaker 02

  And then going into next year, the other product that we're working on is a digital settlement offering so that we can, up to this point, we've only touched fiat currency. Okay. And we are contemplating also providing a settlement service for the digital asset. So that'll be a game changer, we believe. Because just as our customers have asked us for, you know, they asked us for the sand. They didn't know what to call it, um, and nor did we. They asked us now now for the sand for foreign currencies. Uh, they've asked us for credit. They're asking us, you know, hey, we trust you with this. We trust you with our dollars.

• 35:25Speaker 02

  Um, you know, we'd love you to also stand in the middle of, you know, of the digital side of the trade. Um, and and so we get all that done and, you know, and.

• 35:37Anthony Pompliano?

  It's a pretty robust offering.

• 35:38Speaker 02

  Yeah, absolutely.

• 35:39Anthony Pompliano?

  What what do you think you've learned the most if since two thousand and thirteen, when you first read, you know, the Bitcoin white paper to today? So six years, uh, that's more than fifty percent of the lifetime of Bitcoin.

• 35:51Speaker 02

  Yeah.

• 35:51Anthony Pompliano?

  If you can think of it in that sense, uh, and you have built some of the most important infrastructure for this asset in this industry. But it wasn't traditional like Bitcoin infrastructure, right?

• 36:03Speaker 02

  Right.

• 36:03Anthony Pompliano?

  It was legacy banking stuff. What would you say is your biggest takeaway or or lesson learned over those six years?

• 36:10Speaker 02

  Yeah, that's a good question. Um, I would say, first of all, recognizing that that we're a bank. Okay, so, um, and believe me, when when, um, when when you catch the bug, you know, and and, um, you know, I've heard people say go down the rabbit hole, you know, whatever metaphor you you want to use here, um. And and then you happen to be in this in this position where you have access to to all these, you know, these OGs. There's a temptation to want to run off and and do all of this, you know. Oh, it's, you know, crypto is going to solve cancer and, you know, you know, it's going to cure cancer and solve world hunger and and, you know, all those things. And say, hey, wait a second, what can we do as Silvergate?

• 36:55Speaker 02

  We're a, you know, California state chartered chartered bank, a member of the Federal Reserve. Um, and we've got these great customers who have real problems that they'd like us to solve. So the probably the biggest takeaway is, um, is let's let's stay in our lane. Okay, um. But hey, that lane can be pretty broad, but we don't need to go out and do some of these other kind of esoteric blockchain things. We just need to solve problems for our customers. And as long as we're being responsive to what our customers are asking us for, and it's legal and permissible for us to do it, then we've got just an incredible amount of opportunity. And we don't need to go out and look for the next thing. So

• 37:40Speaker 02

  we're not, you know, we don't have skunk works at the bank trying to figure out, gosh, if we build this, I wonder if our customers will want it. It's rather just taking in all of what our customers' needs are and sifting through, you know, what can we really do to help.

• 37:57Anthony Pompliano?

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• 38:41Anthony Pompliano?

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• 39:24Anthony Pompliano?

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• 39:49Anthony Pompliano?

  And so we happen to be recording this on a day where Google just announced that they're going to start offering checking accounts to users. Facebook's got their Facebook Pay, which is separate from Libra. And we've obviously seen Square and the Cash App, etc. Kind of all these technology companies are pushing into the banking industry. What's kind of your take running a bank that's been very successful in a specific vertical, right? Obviously, you're growing very quickly. How do you look at the balance between these large technology companies that, for all intents and purposes, probably have better technologists, right? Just resource-wise than most of the financial industry. But the financial industry understands finance, banking, regulations much better than the tech companies.

• 40:33Anthony Pompliano?

  Like, how do you see this playing out over time?

• 40:35Speaker 02

  Yeah, so it's interesting, the announcement this morning by Google. I mean, they were, at least the article I read in the Wall Street Journal, they were very specific that they aren't trying to be the bank, right? They're going to partner, at least what I saw, they're going to partner with Citi and with Stanford Credit Union. So they recognize that they're not a bank. That, and, and, and so I think one of the biggest takeaways there is, is that, what does Google have? They have distribution, right? What does Facebook have? Distribution. And, and so, and we recognize at Silvergate, we don't have distribution right now. We're certainly

• 41:17Anthony Pompliano?

  You're building it.

• 41:17Speaker 02

  We're building it. And, and in the institutional market, you know, I would say we're, we're building that distribution. But the distribution of, of having, you know, millions, hundreds of millions and billions of, of retail consumer, you know, customers, that's just something that, that, that really, to your point, the tech companies are, you know, much better at building those networks. And, and, and so

• 41:49Speaker 02

  Even when Libra came out, you know, when Libra was first announced, and I looked at the initial members of the Libra Association, and I thought, okay, well, we don't have a direct relationship with Facebook, but we've got relationships with that company, and that company, and that company, you know, and so, you know, if and when there's an opportunity to work with some of those folks, you know, I think we're well positioned. But in the meantime, we're going to focus on, you know, on solving the needs of our existing customers, and I'm pretty confident that there will be an intersection there

• 42:30Speaker 02

  at some point, but we're not going to try to compete with, you know, with the behemoths that have, you know, all the financial resources, the tech resources, and the distribution.

• 42:41Anthony Pompliano?

  Yeah, and it's interesting, because this is, Google's announcement comes on the heels of the launch of the Apple Card, right, which was Goldman Sachs and Apple coming together. And what I've really tried to balance in my head, you know, when you call distribution, I look at as distribution is one component, and the trust is another, right?

• 42:58Speaker 02

  Yes, right.

• 42:59Anthony Pompliano?

  Look, I trust Apple with my, you know, my iPods, or whatever the hell they're called. I trust them with the iPhone, right, I trust them with my computer, etc. Why would I not trust them with banking, right?

• 43:15Speaker 02

  Right, yeah.

• 43:16Anthony Pompliano?

  And there's plenty of people who say, you know, there's data issues, there's privacy, you know, there's all of these potential concerns, but for the most part, I think people feel pretty positive about Google, Apple, Facebook, etc. Is this a world where the finance industry is going to need them to continue to build trust, or do you think that there's folks like Silvergate who, they start to specialize? Whereas rather than go really general and say, hey, we take everybody from anywhere, and that's our focus, and we want to stay really broad, right, which is more of kind of like a JP Morgan or Wells-type approach, you guys have done a great job of saying, look, we're very, very specifically focused on this one industry, because we found a niche, and we're the leader, and we're going to kind of double and triple down. I'm guessing that there's other verticals that you'll eventually go into over time as well, and kind of execute that same strategy.

• 44:02Anthony Pompliano?

  Is it a thing where you can get fast followed by the big guys into these niche strategies? Or is it just right time, right place? You guys happen to understand the problems better and you can really build a moat around, you know, certain industries and then go try to replicate in other niche industries as well?

• 44:15Speaker 02

  Yeah, so I certainly think that the bigger guys can do the fast follow strategy, right? And so, you know, when you think about competitive moats, that the whole reason in 2016, we hired Ben and said, hey, you know, we need to, we've got something here, we need to figure out what we do next is because our first moat was the compliance, you know, the regulatory compliance piece, right? But I'm not naive, I knew that any, any large bank could, you know, could just throw a bunch of bodies at that and replicate it and it wouldn't take them nearly as long as it took us because we were doing it, you know, during our day job, you know, as we're running the rest of the bank.

• 44:58Speaker 02

  So the SEN became our next competitive moat, right? And then as you start to build the network effect that, you know, you mentioned earlier the network effect and we really do have like this two-sided network now, right? Where we've got the, you know, the exchanges and the OTC desks, we've got the institutional investors and every time we add a new institutional investor, it creates value for the exchanges. Every time we add another exchange or OTC desk, it creates value for all the other institutional investors, so it's this virtuous loop. And so, do I think that someone else can come in and replicate that?

• 45:39Speaker 02

  Perhaps, you know, I'm not throwing the challenge out there, you know? But, but the fact of the matter is, network effects are really difficult to disrupt, you know? I mean, why, why is Tether so strong, right? I mean, Tether just gets pummeled, you know, and, and yet...

• 46:00Speaker 02

  They've got four billion dollars, at least we think they do. But the important thing is, the market thinks they do, right? And the market, you know, and, and so, network effects are just incredibly difficult. Now, you also talked about trust, right? You can lose a network effect if you lose trust, right? And, and so, now, having said that, you know, we've seen an example with Libra. But why is Libra coming under such attack? Because of some of the issues with Facebook, right?

• 46:29Anthony Pompliano?

  It's a Facebook issue, not a Libra issue, in most cases.

• 46:31Speaker 02

  Yeah, I, I, I think that's spot on. But even with that, so with all the issues people have, you know, with, with Facebook, it's still a pretty powerful force.

• 46:43Anthony Pompliano?

  Four five hundred billion dollar company, they're doing okay.

• 46:45Speaker 02

  Yeah, exactly. So, so, you know.

• 46:47Anthony Pompliano?

  And do you feel like that's a Western-centric problem, right? Like, I, I, I worked at Facebook, so, you know, full disclosure, I'm highly biased, whether I, I think I am or not. But to me, it feels like the Twitter crowd, the kind of journalism crowd, the, you know, very kind of North American audience, you know, we love to yell and scream and bring our pitchforks out and say, you know, "Facebook sucks," and they stealing our data and all stuff. My general take is probably people outside the United States, they're like, "Man, Facebook's pretty powerful."

• 47:16Speaker 02

  Right.

• 47:16Anthony Pompliano?

  It connects me to my friends and family, and, and.

• 47:19Speaker 02

  Many, many people in, in the world, they don't, that's how they access the internet, right?

• 47:24Anthony Pompliano?

  Yeah.

• 47:25Speaker 02

  I mean, they, they're accessing, they're, they're doing it with Facebook on their phone, right? And, and, and so, yeah. I do think, you know, the, the West, and particularly the US, I mean, just, just look at the, you know, at the, at the crypto Twitter, you know, wars that go on, you know? People love to take a position and then, you know, come hell or high water, you know, that's the truth, you know? So.

• 47:52Anthony Pompliano?

  Intellectual combat, is what I call it, right? The intellectual combat is very real.

• 47:56Speaker 02

  Yeah, yeah.

• 47:57Anthony Pompliano?

  They should be giving out, what is it, like, Purple Hearts on Twitter for the intellectual wounds that people take.

• 48:03Speaker 02

  And, and by the way, on that, on that point, you know, it's, how, how cool is it, you know, so you got Jack, Jack Dorsey, who, you know, who founds Twitter? Right, um, and then Square, um, and then with the Cash App comes full circle with, you know, with um, Square Crypto, um, and and people are fighting about that on Twitter, you know, so I mean it's

• 48:28Anthony Pompliano?

  So it's funny you bring him up, uh, I still think he is highly underrated in the industry in terms of how important he will become, right? So he's important today for sure in terms of Twitter, obviously, he built that platform, Square, um, but uh, he's recently been on this kind of world tour, he's been going, uh, I think he was in Nigeria, then he was in Ghana, and I think he's kind of going through a couple of African countries, uh, and he's meeting up with folks, uh, and the only things he's sharing online are these Bitcoin meetups.

• 48:54Speaker 02

  Right.

• 48:55Anthony Pompliano?

  And there's not a lot of people there, right? He's at meetups and it looks like there's seven or eight people.

• 49:00Speaker 02

  Yeah.

• 49:00Anthony Pompliano?

  Uh, but he's taking the time, etc. And so I wonder a lot, is that a, uh, is this a personal social type trip, right, where he's just going for fun? Is this, hey, I want to understand my users on Twitter and Square?

• 49:11Speaker 02

  Right.

• 49:11Anthony Pompliano?

  Or is, um, what I immediately think through is, you know, there's a world where actually Westerners are last to understand any importance of Bitcoin and crypto because we do have banking, we do have the dollar, we have a credit card, right? You know, there's all these infrastructure in place.

• 49:26Speaker 02

  Yeah.

• 49:27Anthony Pompliano?

  African countries, Asian countries, South American countries, like, there's a lot of people who actually don't have that stuff available to them, right? And if you think about the difference between, uh, if I have to sign up for a US bank account and go through all the kind of hoops and hurdles of doing that, um, and to buy a stock, for example, versus if I have an internet connection, I can jump on, you know, Binance or some exchange that's outside the United States and just buy a tokenized stock.

• 49:51Speaker 02

  Yep.

• 49:51Anthony Pompliano?

  The accessibility and frictionless experience of going with my internet connection on a crypto exchange.

• 49:58Speaker 02

  Right.

• 49:58Anthony Pompliano?

  May actually drive me to go do that rather than go the traditional route.

• 50:02Speaker 02

  Yeah.

• 50:02Anthony Pompliano?

  And so do those other countries leapfrog kind of US infrastructure, right? They kind of do this with mobile banking a little bit.

• 50:08Speaker 02

  Yep.

• 50:08Anthony Pompliano?

  And so I think a lot about just, you know, are Westerners almost too spoiled to see the opportunity?

• 50:14Speaker 02

  Yeah, no, and, and I mean, certainly in crypto, that's, that's, that's the case, I think, where, you know, there, there are so many folks, um, in non-Western, you know, the non-Western world that, that, that kind of get what, you know, kind of the, some of the core underlying values and opportunity is with Bitcoin, um, you know, the stuff that you were just articulating, um, and that's, that's one of the things, so. When I get philosophical about this, you know, I don't think that Bitcoin is going to replace the US dollar, right? I don't think that it's...now, could it become as, you know, the Bitcoin standard?

• 50:54Speaker 02

  You know, could it become, you know, kind of like the reserve currency for the world and replace gold? Certainly, you know, I mean, gold's got a huge head start, and but...

• 51:06Anthony Pompliano?

  Only 5,000 years.

• 51:07Speaker 02

  Yeah, exactly. But if you think about it, you know, I mean, in a digital world, you know, what other asset is there that has the digital scarcity of Bitcoin? Now, folks don't understand it, it's still early, you know, but give it another, you know, couple of decades and it still will have nothing compared to the 5,000 years of, you know, of gold, but, but things are moving a lot faster now, too.

• 51:31Anthony Pompliano?

  Yeah, for sure. What, um, what's been the one thing that you kind of sit back and say, in 2013, when I jumped into this, I didn't expect X to happen? Like, what's been the most surprising thing over the last six years?

• 51:44Speaker 02

  Well, just kind of on a superficial level, the price, right? I mean, I bought Bitcoin in 2013 as an experiment, you know, I wanted to understand how it worked. And, you know, I didn't buy enough because I didn't believe enough, you know, but, but, but what I thought was, I thought, wow. So when I was, I was reading that, this thing called Bitcoin, everyone was going to be able to beat their own bank. And as I shared earlier, I've been in banking my entire career and I was like, oh, what am I gonna do?

• 52:15Anthony Pompliano?

  About to work for myself?

• 52:17Speaker 02

  Exactly. And, and so I thought, I'm gonna try this, you know, and, and even though I'm not, you know, I'm not a super techie guy deep in the weeds, I try everything, you know, I just want to see how it works. And, and so, so I bought some Bitcoin, and then the price ran up to a thousand bucks, you know, I thought, wow, that's incredible. And then the price came back down, and I thought, yeah, okay, so, but I did buy more, you know, because I thought, well, heck, I might as well just, you know, I, one of our, our, the one, one of the women on our board of directors said, you know, Alan, we ought to just each buy $10,000 worth of Bitcoin, just forget about it.

• 52:57Speaker 02

  I wish I would have done that in 2013, you know, so I did it later, but, but, you know, I bought a lot fewer.

• 53:07Anthony Pompliano?

  Then you would have been.

• 53:08Speaker 02

  But, you know, if, yeah, if I was gonna buy, if I was gonna spend ten thousand today, I'd only get a little over one, you know, so, anyway, so, so the surprising thing, I guess, on the one hand, is, is the price, and, and I think it's got, obviously got a lot of room to run still, but, and then, you know, I just, the development of the ecosystem, I've, I kinda missed the whole internet thing, okay, I was, you know, that was in the early nineties, I was out of banking and running companies, and, so, you know, on the periphery, I was hearing about the internet, but I was, I was in, I was in a wholesale bakery doing

• 53:49Speaker 02

  a chapter eleven turnaround of this, of this family-owned operation in San Diego, I didn't have time to, you know.

• 53:56Anthony Pompliano?

  Yeah, what, internet?

• 53:57Speaker 02

  Internet, you know, you know, I look back on some of the, actually, something that you just wrote, where, where, where you were talking about, I think, the, you know, the.

• 54:05Anthony Pompliano?

  The early internet, yeah.

• 54:06Speaker 02

  The early internet, yeah, and, and, you know, hearing the, you know, the dial tone, you know, and seeing, you know, that clip from, what show was that?

• 54:16Anthony Pompliano?

  Uh, I think it's Brian Gumbel.

• 54:18Speaker 02

  Brian Gumbel, yeah, what is the internet, what's that acronym, or, yeah, that A with the circle around it, you know, so, but yeah, you know, so, it's, it's been just absolutely fascinating to be, just be blessed to be at the early stages of this kind of revolution that is digital currency.

• 54:38Anthony Pompliano?

  Yeah, and, and it's pretty crazy to me, I think, as you think through the impact that this can have on the world, right, in terms of, the United States has been a great beneficiary of things like credit, for example, right?

• 54:51Speaker 02

  Yeah, right.

• 54:52Anthony Pompliano?

  Things where people, when they're given access to financial services, in terms of income generation, and, and yield, and, and ability to invest, etc.

• 55:02Anthony Pompliano?

  I always go back to just this idea that there's not a lot of people in the world on a percentage basis that have that access. Right? And so I've spent a lot more time now thinking about like what I call income generating activities. So mining, right? You know, I was talking to somebody from Venezuela recently and he's like, look, man. You know, the average person doesn't make that much money here, right? And guess what? That money is getting worse and worse in terms of the hyperinflation, etc. But I can buy a computer, I can plug it in at home, I can turn it on with my internet connection. And now all of a sudden I'm making money every month, right? And it's like more like income supplementation. And I, and it really threw me down this hole of like, well, what else can you do with just an internet connection, right? So you could do staking, you can do mining, you can do these interest accounts, like, sure, looking at it and you're like, look.

• 55:47Anthony Pompliano?

  Again, I don't think that it's gonna, you know, completely solve the world's problems, right? And you know, global warming disappears, right? And you're kind of like, how did you jump from Bitcoin to global warming? But in, in terms of giving access to what you and I would consider kind of table stakes financial services. It can be really powerful for economic development around the world. And what I look at is like, when do the governments realize this? And say, you know what, maybe we aren't the best at trying to drive economic development. Instead, let's empower people to use these services, get connected to the rest of the world financial, you know, industry, etc. It may never happen, or maybe it happens, you know, somewhat in the short term. Uh, but to me, it just feels like that's like another inflection point that onboards a lot of people very quickly.

• 56:31Anthony Pompliano?

  Um, and it kind of gets them into what I think is, you know, this alternative financial system that has a lot of benefit to it.

• 56:37Speaker 02

  No, I, I, I definitely agree with that concept. I don't see governments, um, you know, really kind of pushing that, right? Because government, you know, um, so, but if, if governments can just kind of. You know, not over-regulated and let it happen. Um, I think it can be very complimentary.

• 56:59Anthony Pompliano?

  How do you look at the regulatory environment today in the US with crypto? Like, you sit in an interesting seat because you actually are more regulated than almost every crypto company, right? Given that you're, you've had state charter, etc. But when you look out at the crypto industry, there's a lot of people who say, hey, there's uncertainty or the rules need to change, etc. Like, you're probably one of the best people to have an opinion. What do you kind of think in terms of that regulation in the environment today?

• 57:24Speaker 02

  Yeah, so, so there's, there's certainly opportunity for, um, you know, for improvement of, of the regulatory climate. But what, what folks really need to understand is, you know, if you want to change the regulation, in, in most cases, you have to change the law, right? Regulations are just written to, to kind of interpret and, you know, and, and, you know, essentially enforce the law in a certain sense, right? Um, so when we, when we first got into this, um, what, what our premise was, well, you know, there are existing regulations

• 58:01Anthony Pompliano?

  Yep.

• 58:02Speaker 02

  that, um, you know, that determine how we're supposed to treat a money service business. What type of KYC are we supposed to do, um, you know? Um, what type of regulatory framework should these companies have? And one of the biggest kind of filters that we use when we're working with a, with a new prospect, um, whether it be an exchange, OTC desk, um, you know, do they understand the regulatory climate that they're stepping into, right? Um, and if they don't, if they don't have a view on which states they need a money transmitter license on what, in which states they don't, um, you know, do they have a compliance officer? Um, or is the compliance officer also the CEO?

• 58:43Speaker 02

  You know, I, I mean, in the early stages, um, folks were just really kind of coming up the learning curve. And it's understandable because they were essentially software engineers, you know, they, they were coming from the technology world. And all of a sudden, they had people banging on their door saying, um, hey, you know, you need to comply with these laws. And they say, hey, wait a second, I just created this, you know, This program to, you know, to trade bitcoin. And, and so we certainly had the benefit being a regulated financial institution and understanding regulation. It's just, okay, well, let's, let's figure out how, how the existing rules apply. So I don't, I didn't buy the fact that, oh, this is the Wild West and it's not regulated. I, you know, I, I said, timeout, it's regulated, you know, we just people, people need to understand how it is.

• 59:27Speaker 02

  So now, are there opportunities for improvement? Certainly. You know, I know there's a lot of concern about the, you know, the, the state by state money transmission licensing. You know, the fact that, that there is no federal, you know, one, you know, but I mean, be careful what you wish for, right? To have one federal overseer for all of that, you know, there is something to be said about the sovereignty of, of the individual states. And, you know, and, and the way the US is set up. So, so I think it's a mixed bag. Our, our goal is, you know, we're certainly happy to enter into dialogue with regulators and with politicians, you know, about how things could be improved. But those, those changes are probably gonna be slow.

• 1:00:12Speaker 02

  And when we do get them, we're, you know, again, be careful what you wish for. So we're just gonna focus on what are the rules and how do we, you know, how do we comply with them? My, one of the things my, my wife teases me about is when I was growing up, I have three, three brothers. I loved to play board games. And I, I always read the rules, you know? And, and so I, we just read the rules, you know, and figure out what are the rules of the game. And, you know, and that's, that's, that's how we got into this business. And that's how, as we think about new products and services, you know, we have a relationship with the New York DFS. We're a California bank, right? So why would we have a, a relationship with the DFS? Well, because they regulate a lot of our customers, right?

• 1:00:56Speaker 02

  And so several years ago, we realized, you know what? They should, we should know them and they should know us. And so we, we made an appointment. And I think initially they were like, well, what was it, why is this California bank coming here? But, but we have a dialogue with them. And so as we think about perhaps offering like the, the, the settlement for digital assets. And perhaps not doing that inside the bank, but maybe in a separate licensed entity. That would be a sister company to the bank. There's an opportunity perhaps to do that here in New York, you know, with with the DFS. We've got a relationship with the OCC. They regulate national banks, but we've been in there to talk with them.

• 1:01:39Speaker 02

  You know, the FDIC comes in even though we're a member of the Fed. So the FDIC doesn't normally come into a state bank that's a Fed member because you only have one federal regulator. But the FDIC likes to come in to see what we're doing, you know, and since they insure our deposits.

• 1:01:56Anthony Pompliano?

  What's that crypto thing? Those guys are friendly with the crypto people. What are they doing?

• 1:02:01Speaker 02

  Yeah, so so so we have a lot of dialogue with a lot of regulators.

• 1:02:04Anthony Pompliano?

  Speaking of regulators and kind of lawmakers, there's a lot of talk now of a digital dollar, right? So the US creating this digital dollar, any thoughts in terms of good idea, bad idea, or kind of how you see that playing out?

• 1:02:17Speaker 02

  Yeah, so so it's interesting because in one sense, and I know this isn't what people are talking about, but in one sense, it's already digital, right? You know, so that's I know that's not what folks are talking about, but when you go to the

• 1:02:31Anthony Pompliano?

  Yeah, ninety, just for those that are sitting at home, ninety two, ninety three percent of the money supply is not physical paper or physical coins.

• 1:02:38Speaker 02

  That's right.

• 1:02:38Anthony Pompliano?

  It's exists somewhere in the digital world. When people talk about this quote unquote digital dollar, what they're talking about is essentially tokenizing the dollar.

• 1:02:45Speaker 02

  Tokenizing the dollar and then, you know, essentially making that though then a direct obligation of the Federal Reserve as opposed to an obligation from your bank. And that's and that's the primary difference is when I I have a bank account at Silvergate, right? And so theoretically, that's where my money is.

• 1:03:04Anthony Pompliano?

  Breaking news, the CEO of Silvergate has a Silvergate bank account. Okay.

• 1:03:09Speaker 02

  Well, hey, but but that was important.

• 1:03:11Anthony Pompliano?

  That gives me confidence.

• 1:03:12Speaker 02

  Yes, but but I'll I'll tell you when I when I when I bought my first Bitcoin and I wanted to understand the experience of buying it through an exchange. So I connected, this is in October thirteen, I connected my Silvergate account to my Coinbase account that I had opened online. I wanted to see where where did my money go, you know? And and so I took great comfort being the CEO of Silvergate that I could I could really watch watch the account closely, you know, so.

• 1:03:44Speaker 02

  So, but back to your question on the tokenized dollar, you know, I, I think there's some things to figure out there, right? Because the whole credit system of, of the US, you know, how do people get loans? They don't get loans directly from, from the Fed, they get them from banks, right? And, and why do banks, you know, so, so banks are essentially fueling the economy, you know, in the sense of kind of, that's how, that's how the government creates money, right? Um, is through, is through, through the banking system. And if you tokenize those dollars to where you don't have to go to a bank, uh, but you can, you can just do it direct, um, you know, now all of a sudden there aren't deposits um, in commercial banks to fund the loans. Um, and, and so I, there's some stuff to figure out there.

• 1:04:29Anthony Pompliano?

  There's just a lot of challenges in terms of, there, there's almost like a second and third order effects of doing it. So you may solve one problem, but create other problems.

• 1:04:38Speaker 02

  That's right.

• 1:04:38Anthony Pompliano?

  Interesting. Um, all right, as we wrap up, uh, rapid fire set of questions. What do you think is the most important company in crypto other than Silvergate? You're one of the only people coming here who legitimately, you may be one of the most important companies. I joke with people usually, but you actually may be one of the most important guys. What is, what do you think is the most important company other than Silvergate?

• 1:04:57Speaker 02

  Sure, so, um, I'm gonna actually go back to our, our very first customer. I think the Digital Currency Group, um, is, is probably, um, you know, because if you think about what they do, um, so they have three primary businesses, right? So they have, um, Genesis Trading, where, where they are facilitating, um, you know, the buying and selling of Bitcoin. They're, they're, they're also doing lending, right? So they're, they, they, um, they've expanded their offerings. So that's one line of business there. They have grayscale, um, which is the, the way that, you know, you can do institutional buying, you know, of a, you know, of a regulated security, if you will, um, you know, of all the different funds that they have.

• 1:05:42Speaker 02

  And then they've got CoinDesk, you know, which is the marketing arm. But then importantly, they also then have investments in, um, and this is probably the most important piece from my perspective. They have investments in, um, around a hundred and fifty crypto companies. Um, so they're providing seed funding and, you know, and assistance with companies that, that are starting in, in this ecosystem. And, um, so, you know, hats off to Barry for the vision that, that he had, um, you know.

• 1:06:13Speaker 02

  And, and, you know, and then thank you, I want to thank him too for sending us some of those early referrals. And then, I don't think we've mentioned this yet, but I, but I should mention to you now that I've said I think they're the most important company, but I actually personally invested in Digital Currency Group back in 2015 when they were, when they were essentially selling second market, they were going all in, creating this company called DCG, the Digital Currency Group. I thought this would be a great way for Silvergate, you know, to, to really participate, but I knew that the bank, you know, talk about regulation, you know, the bank wasn't going to be able to itself make an investment in Digital Currency Group.

• 1:06:55Speaker 02

  And so I approached Barry and asked him if he was doing a little friends and family round and, and I, I wrote a very modest check, but, but it's been an incredible partnership, you know, to, to have an inside view. And there's a lot of stuff that Digital Currency Group is, is going to be involved in that isn't going to be relevant to Silvergate and that's okay. But

• 1:07:18Anthony Pompliano?

  But you got a front row seat.

• 1:07:19Speaker 02

  Yeah, absolutely.

• 1:07:20Anthony Pompliano?

  Yeah, it's, it's great. What, uh, what's the one regulation that you would change or improve if you could?

• 1:07:24Speaker 02

  I'm gonna stay away from all banking regulations.

• 1:07:27Anthony Pompliano?

  Okay, that's fair.

• 1:07:28Speaker 02

  I, I actually think the, um, you know, the whole concept of a de minimis amount of, of Bitcoin, you know, that you can transact with, you know, folks have talked about like 600 bucks or something like that. I faced this myself, so I'm a hodler, you know, I bought Bitcoin, I just, I tucked it away. But then when I wanted to experiment with, okay, well, what if I wanted to set up like my own node, I, you know, I want to set up a Lightning node, for instance. So I'm gonna go online, I'm gonna buy a nodal. Okay, well, guess what? I can only do that with Bitcoin or Lightning. So now I've gotta go, um, you know, either sell some of my Bitcoin that I bought at 100 bucks and pay tax on it, right? Or, so I just bought some, you know, so I, I just bought some new Bitcoin, you know,

• 1:08:13Speaker 02

  but, I mean, so that was like a $400 transaction, then I'm gonna have to pay tax on it, right? Um, and, and so

• 1:08:19Anthony Pompliano?

  Yeah, it, it, it's just, it's a huge discouragement, I think, right, to, to be making these smaller transactions.

• 1:08:26Speaker 02

  Yeah, yeah.

• 1:08:27Anthony Pompliano?

  Hopefully it gets figured out. Uh, what's the most important book you've ever read?

• 1:08:32Speaker 02

  So I could, I could give you um a bunch of business books, but when you ask the question that broadly, I'm gonna have to um, you know, say the Bible.

• 1:08:42Anthony Pompliano?

  Mm-hmm.

• 1:08:42Speaker 02

  It's, it's, it's the only book that I read out of every day.

• 1:08:46Anthony Pompliano?

  Yeah.

• 1:08:47Speaker 02

  So um.

• 1:08:47Anthony Pompliano?

  It, it, it's funny to me how few people say the Bible.

• 1:08:52Speaker 02

  Yeah.

• 1:08:52Anthony Pompliano?

  I would think that that would be the most popular answer.

• 1:08:54Speaker 02

  Yeah.

• 1:08:55Anthony Pompliano?

  And most people usually say, you know, whatever other book.

• 1:08:58Speaker 02

  Sure.

• 1:08:58Anthony Pompliano?

  But uh, I, I think it is uh, for those that read the Bible, it probably is the most.

• 1:09:03Speaker 02

  Yeah, no, it's, it's, it's the only book that I always have in, you know, I always, I've got it in my backpack, um, I read it every day.

• 1:09:10Anthony Pompliano?

  I love it.

• 1:09:11Speaker 02

  And um, so yeah, um, yeah.

• 1:09:14Anthony Pompliano?

  That's awesome. Um, what uh, what about aliens? Believer, non-believer?

• 1:09:20Speaker 02

  Yeah, so, so.

• 1:09:22Anthony Pompliano?

  Oh, he may go, he may go with a no!

• 1:09:24Speaker 02

  No, no, no, no, no. I'm not gonna go with a no, because it's certainly possible, right?

• 1:09:29Anthony Pompliano?

  Okay.

• 1:09:29Speaker 02

  It's absolutely possible. Um, I don't spend a lot of time worrying about it, you know, now, I love, you know, I grew up, you know, enjoying science fiction, that kinda stuff, and, and so, um, but it's just, I mean, there's so much to do here on Earth. And, and with our fellow human beings, that I don't spend a lot of time worrying about, you know.

• 1:09:51Anthony Pompliano?

  That's fair.

• 1:09:52Speaker 02

  You know, so, um, but is it possible? Absolutely, it's possible.

• 1:09:55Anthony Pompliano?

  Are, are you somebody who would be more interested in space exploration or ocean exploration?

• 1:10:01Speaker 02

  Um, yeah, so a- actually, probably space exploration.

• 1:10:05Anthony Pompliano?

  Okay, space, okay.

• 1:10:06Speaker 02

  So um, and, and that just, you know, I had a telescope when I was little, you know, I loved astronomy, um, you know, and.

• 1:10:11Anthony Pompliano?

  It fascinates me how, and, and maybe it is because we're little or whatever, but just the uh, the human desire to look out and go up and, and kind of, you know, space and stuff. When we don't know what's underneath the water.

• 1:10:26Speaker 02

  Yeah, no, absolutely, absolutely.

• 1:10:29Anthony Pompliano?

  Like, it just, it just strikes me as, uh, and, and again, I, I don't know if it's a human nature thing or what, but just, there's not that many people who say, "I'm very interested in what's beneath the water," right, here on Earth.

• 1:10:39Speaker 02

  But i- if you think about it, and, and you know, I grant you that most of the Earth is covered by water, but there are a lot of people that, that don't touch the ocean, you know, but everybody.

• 1:10:48Anthony Pompliano?

  Everyone looks up, yeah.

• 1:10:50Speaker 02

  Yeah.

• 1:10:50Anthony Pompliano?

  That's very fair.

• 1:10:51Speaker 02

  Yeah.

• 1:10:51Anthony Pompliano?

  What uh, what one question you have for me to end this thing?

• 1:10:55Speaker 02

  So what what do you think the most important, um, most important company in crypto is? You you talked to a lot of companies.

• 1:11:03Anthony Pompliano?

  Yeah, I cheat.

• 1:11:05Speaker 02

  So you you've probably been asked this question before.

• 1:11:07Anthony Pompliano?

  Not not actually that often. Um, I say Bitcoin. Yeah, it's not a company, right? But but just the market is determined to be the most valuable. It was the first. It it's, um, I joke and say it's like the first love of anyone who comes to the industry, right? Is the, oh, Bitcoin got me here, right? Maybe they kind of go their own path, whatever, but but that one will always be there. Uh, but in terms of companies, um, so that's always my answer. And then some people push me like, well, you can't say not a company.

• 1:11:34Speaker 02

  Yeah.

• 1:11:35Anthony Pompliano?

  Right now, uh, and I'm always careful to say like this actually changes in my opinion, right? Based on market dynamics, kind of where companies are, people can fall from grace, right? All that kind of stuff. Um, right now, I I'd have to say that, uh, Binance is probably the most important. And I say important because one, it's one of the deepest liquidity pools, if not the deepest. Uh, it's also got probably the most aggressive kind of land and expand strategies. So start with a spot exchange and then it quickly add, you know, futures and lending and all this other kind of stuff. Um, and then the third part, and probably the part that is most underrated about the company that I've started to think more about.

• 1:12:16Anthony Pompliano?

  CZ and that executive team are probably most open to working with non-North American countries to really drive adoption basically everywhere else in the world.

• 1:12:26Speaker 02

  Right.

• 1:12:27Anthony Pompliano?

  Right?

• 1:12:27Speaker 02

  Yeah.

• 1:12:27Anthony Pompliano?

  And I think that there's a lot of companies who say, hey, I want to be in the US. I want to be a US-based company or I want to service US customers. And then there's people who focus on China and kind of Asia. But there's a whole bunch of countries that get left out. South America, Africa, you know, Europe, kind of the whole Middle East. Um, you know, you you kind of just go through all of this. And and, uh, if you look at some of the countries that, uh, Binance has pushed into, it's not places that you would normally think about.

• 1:12:54Speaker 02

  Yeah, no, that's a great point.

• 1:12:55Anthony Pompliano?

  Uh, you know, Uganda.

• 1:12:56Speaker 02

  Right, yeah.

• 1:12:57Anthony Pompliano?

  Who who's sitting there in their, you know, corporate boardroom saying, uh, hey, what's our Uganda strategy?

• 1:13:02Speaker 02

  Right, yeah.

• 1:13:02Anthony Pompliano?

  Right?

• 1:13:03Speaker 02

  Yeah.

• 1:13:03Anthony Pompliano?

  But for whatever reason, right? And I actually don't even know the story as to why that became a a place where they really pushed in and and and kind of got a lot of, uh, success. But I saw recently, I think he, um, people will correct me on Twitter if I'm wrong on this. But I think he was in, uh, Uzbekistan or somewhere, right? And kind of just these kind of obscure places when you think of it from a corporate. Uh, planning process. But there's millions of people that live in these countries who they want access to this stuff. And so, um, right now, I think they're kind of pushing the pace and look, they are either going to be successful or not, but when you have somebody out in front pushing the pace like that, everyone else is playing catch up. Right. Right? And so you kind of drive the competition by having somebody who, who's willing to kind of go out there.

• 1:13:46Anthony Pompliano?

  So for, for right now, in was this November 2019, I'd say Binance, ask me in six months. Yeah. CZ, don't mess up or I'll have to change my answer. So, uh, listen, thank you so much for doing this. Where can people go, uh, if they want to open an account at Silvergate or become a customer? Where can they go? Silvergate.com. In the legacy world, they have the dot coms and they act like normal companies. Yeah, we're, we're, we're a company that actually has to make money. I, I, I won't say the name of the company, but I was looking for somebody's website recently and I tried every, you know, get at the name. Yeah, yeah, yeah. You know, uh, with at the name, uh, the name app.com. Like I was trying all these different, I couldn't find it and Google wasn't being helpful.

• 1:14:29Anthony Pompliano?

  And it eventually be, uh, ended up being with the name of the company dot I O. Oh, wow. And I was like, that's no wonder I couldn't figure that one out. Yeah, no kidding. Awesome. Well, thank you very much. You're on Twitter as well? Um, I'm on Twitter, um, at Silvergate CEO. All right, don't, uh, don't leave because then you have to change Twitter name. That's right. All right, now, thanks so much for doing this. All right, thank you.

• 1:14:51Anthony Pompliano?

  Hey, everyone, Pop here. If you liked this episode of Off the Chain and want to help us take crypto to the top of the Apple, Spotify and other podcast charts, please do us a favor and rate, review and subscribe. To review, simply go to the Off the Chain homepage, scroll down until you see the five blank stars. Taking 15 seconds to fill those stars in and leave a quick review goes a long way in helping us take the entire crypto ecosystem to the top of the charts. I appreciate you listening and see you next time on Off the Chain.