Long reads

WallStreetBets founder Jaime Rogozinski talks institutional interest in cryptocurrency

Paige McNamee

Paige McNamee

Senior Reporter, Finextra

Following the launch of WSBDApp’s exchange-traded portfolio (ETP), WallStreetBets (WSB) founder and strategic advisor to the WSBDApp, Jaime Rogozinski, announced that the decentralised application is launching its DeFi products onto the Bitcoin blockchain on the Money 20/20 stage in Las Vegas.

The app will facilitate securities trading by working with the Digital Markets (DIGTL), Liquid Network, and MERJ Exchange alliance to provide access to ETPs, tokenised stocks of major companies, and other assets (such as NFTs) voted upon by the WSBDApp community.

In response to these announcements, Rogozinski sat down with Finextra to delve into some of the sector’s buzz points.

Describing WSBDApp as a decentralised organisation that lives on the blockchain, Rogozinski first explains that it is an ecosystem which is merging traditional finance or trade finance with DeFi. It provides 24/7 (or close to) trading, and is trying to harness the power of crowdsourcing and open source mentality to create ETPs which “look a lot like ETFs, but they’re traded on the blockchain.”

To harness this crowd-sourced resource, the WSBDApp recently launched a macro hedge ETP which, rather than being a “YOLO” investment, is an ETP designed to behave more like a stablecoin (“but more stable”).

“It will be a place for people to park their money, where it won’t lose its purchasing power.”

He argues that most stablecoins today are pegged to the dollar or other fiat currency, and share those currencies’ inherent risks. “This is a mix between fiats, cryptos, and metals that are meant to pretty much withstand any type of pressures at a macro level, such as inflation or geopolitical tensions.”

Referencing a subreddit born joke, Rogozinski explains that the immense desire for retail investors to get their piece of the pie recently took the form of mooting a “Nancy ETP”, where an index would specifically track portfolios of politicians currently embroiled in trading controversy. Turns out that Tiktokers and trading platforms were already following their moves, and the Federal Reserve has since announced sweeping new rules to ban policymakers from trading in individual stocks and bonds.

The WSBDApp is focused on retail users, as Rogozinski notes that the WSB branding and messaging  is primarily targeted at the retail audience.

The core attraction of WSB’s ethos is built upon being a challenge to the system as much as it is to make money. It’s about “taking control, empowering yourself financially, and democratising finance. Our approach has been to promote the idea that it’s your right to take a risk and you’re your money, but don’t hand control to the hedge funds of the world to do it for you.”

That said, he furthers that it is entirely possible that hedge funds, or larger institutional players may be attracted to some of these new products. Several companies (some publicly traded) have approached the app for opportunities to invest in DeFi projects such as WSBDApp, states Rogozinski.

“But while it’s possible that there's going to be overlap or integration, the users of this ecosystem are primarily going to be retail.”

Where does this heightened institutional interest stem from?

Recent research from Fidelity states that 84% of US and European institutional investors are interested in investment opportunities that provide exposure to digital assets. A third of respondents noted they already hold crypto assets directly.

According to Rogozinski, regulation has played a large part in building this interest. Comparing the rise of crypto acceptance with the way in which marijuana was slowly decriminalised, legalised and increasingly accepted in various parts of the US, he notes that the complexity that arose throughout this process saw a tangle of inconsistent rules across local, state and federal governments.

“It was a mess, but the rules are more clearly defined now which means we’re seeing the space flourish. It’s similar with crypto. Regulators are still trying to figure it out and will be trying for a while.”

The widespread adoption of crypto by large players like PayPal and Visa, and countries or regions now accepting Bitcoin as payment, has also helped to temper uncertainty around crypto uptake.

The strongest crypto driver of institutional interest, he argues, is that institutions are finally realising the power that crypto holds beyond its use as a currency.

“In fact, the biggest problem that crypto has is being associated with a coin. It even took me a long time to shift my stance away from crypto being either Bitcoin or Ethereum or some other type of altcoin. There is so much more to DeFi, and I don’t think we’ve even begun to scratch the surface.”

 He adds that what is currently being seen in the space are merely applications of existing TradeFi market mechanisms on the blockchain, and that we’re yet to see how many other sophisticated applications will be created in the financial realm.

 Are looming legal and regulatory unknowns a wet blanket?

Ongoing turbulence in the regulatory approach to digital currencies has been widely publicised, Coinbase, Ripple’s XRP proceedings, and of course the saga that is Binance are just a few. Surely this uncertainty alone would be enough to dampen institutional interest?

It’s all relative, Rogozinski believes: “The uncertainty now pales in comparison to what it was five years ago.”

While we’re still watching as proceedings unfold before the courts, and powerful figures proclaim crypto is dangerous or criminal or high risk, he argues that the latter is just “symbolic muscle flexing.”

He argues that crypto is in its youthful stage, with definitions and categorisations still being worked out, and regardless of what court decisions or legislative definitions turn out to be, the ramification of a decision will be beneficial for the sector.

“Nobody wins or loses. The jurisprudence that comes from these matters will encourage institutional investors to have more certainty about how and what they are investing. Investors are waiting to be told what the parameters are and will be happy to have a clearer framework to invest within.”

The US’s Infrastructure Spending Bill pushed through in August saw significant backlash from the crypto community, due to the burdensome tax reporting requirements being extended to wallet developers and miners.

Yet, Rogozinski welcomes this kind of legislative attention.

“Nobody likes taxes. I don't want to be taxed – I don’t think anyone wants to. Children don’t want to eat their vegetables, but they have to. We don't live in an anarchist state, and governments need taxes in order to function. I think it's perfectly fair for them to try to collect revenue.”

He adds that many players in the space have “had a free ride” without being taxed, but that it simply isn’t sustainable.

Acknowledging the perennial issue of governments legislating on topics they themselves may not fully understand, let alone have expertise on, Rogozinski believes that slowly introducing layers of bureaucracy is better than ‘agile’ governments who step in too quickly and do damage by implementing new rules prematurely.

“I don't think regulators will ever get it perfect, they'll continuously improve, they'll make their best effort, all interested parties will have a voice and an opinion, and when the legislation is finalised it’s probably going to be mediocre. But over time it will improve, errors will be rectified and the industry will benefit - as inefficient as it may seem.”

“Things will start with the US government taxing crypto and increasingly looping it into various legislation, I think it’s a seal of approval. Not everyone will be happy with the government bureaucracy they produce, but hey, I'll take some legislation over none.”

From El Salvador to China – understanding the spectrum of digital currency uptake

Living in Mexico himself, Rogozinski is somewhat sympathetic to El Salvador’s move of adopting Bitcoin as a national currency.

He notes that the country (and other Central American nations) which uses the US dollar as its currency is a “slave” to it. “They have zero controls over it, and are at the mercy of the US.”

The Bitcoin move, he argues, is El Salvador saying, “we're choosing instead to put our currency in the hands of this new technology which is decentralised and secure, to give us more opportunities. I think that it's a logical step.”

Rogozinski thinks that Latin America will see more of this transition toward crypto alternatives, and that many neighbouring countries are watching the El Salvadoran “experiment” closely.

“El Salvador is in complete contrast to China. El Salvador was happy to adopt Bitcoin as is, whereas China has been intrigued by the power digital currency holds but remains wary of currencies like Bitcoin themselves – hence their work on the digital yuan. That's a brilliant move on their end - if I really wanted to have full control over my population, that's what I would do.”

The Chinese approach fairly comprehensively undermines the original, fundamental, objective of cryptocurrencies as being decentralised, he argues.

“China has literally said, ‘we’re going to take all the good things about cryptocurrency and make them ours, particularly on the topic of anonymity. This approach is like a dream come true to a surveillance state.”

Clarifying his point, Rogozinski states that while the digital yuan itself goes against the ethos of ‘cryptocurrency’, the blockchain technology underlying it and the local application doesn’t necessarily.

“Let’s not pass judgement on whether China’s approach is good or bad. Let's just say, for China's purposes, and we know their style of doing things, this is an incredibly effective way of accomplishing their goals.”

“We may disagree with them, but it’s an effective way for the Chinese state to, for example, impose sanctions on a granular level like you wouldn't believe. It would go from international level type sanctions, to ‘this specific store is no longer allowed to trade,’ that’s crazy.”

He adds that China’s crackdown on cryptocurrency outside of the government controlled digital currencies won’t be enough to perturb the industry or “make Bitcoin go away.”

“The beauty about these decentralised technologies, is that technologically they're impossible to get rid of. You can make rules against them, threaten to punish those who use them, and while it might deter people, it won’t make it go away.  

Contrasting El Salvador with China, “it’s good to look at how the other countries that are kicking the can down the road, they’re now seeing that they’re going have to live with this thing.”

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