A month after the United State’s Securities and Exchange Commission’s decision to deny Bitwise Asset Management’s application for a Bitcoin ETF, the industry is once again faced with the question of what needs to be built in order for institutional capital to move more seriously into the space.
However, there are a growing number of companies that are working to identify what’s missing from crypto and to build the platforms that the industry needs to flourish as an institutional investment class.
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Recently, Finance Magnates spoke to Marc Bhargava, co-founder and President of New Jersey-based electronic agency prime brokerage Tagomi, a company that’s been working to create institutional-grade brokerage services within the cryptocurrency industry since January of 2018.
Since its inception, the company has expanded into several cities across the country and in the UK, and has formed partnerships with some major players within the space, including ICE’s Bakkt and Binance. Tagomi was also recently granted a BitLicense from the New York Department of Financial Services.
Marc spoke with us about the history of the young company, as well as plans for the future and predictions of what’s coming next for crypto.
The following is an excerpt. To hear the rest of Finance Magnates’ interview with Marc Bhargava, please visit us on Soundcloud or Youtube.
The making of Tagomi
Despite the fact that Tagomi is less than two years old, the company has already put down roots in several cities across the United States as well as overseas.
“We have 20 people, [and] we’re primarily in New York and New Jersey, but we have offices in Chicago,” where the company’s COO and Director of Engineering are based, as well as an office in San Francisco, where the company’s front-end and design team members are.
Tagomi also has “a few folks out in London as well,” which Marc says is because “we’re now trading 24-7.”
Marc explained that the company was first conceived after in 2017, he began “hearing a lot of folks in the market asking for an institutional platform to trade crypto. Retail investors had their exchanges; they had the Coinbases or Binances or Krakens of the world.”
“But someone looking to do larger trades and wanting to do them electronically rather than calling an OTC, wanting to use more advanced algo types, wanting to do things like lending and shorting–and most importantly, wanting it done on an agency basis (meaning wanting someone to execute these trades and then post trade reports and show them how they did it in the best possible way for them–none of [those features] really existed, because it was a really nascent market.”
Co-CEO @GregTusar at the Multicoin Summit explaining the parallels between crypto market structure today and the evolution of other asset classes: https://t.co/fPvYlMib7p
Thanks for a great panel @TusharJain_ @multicoincap— Tagomi (@tagomisystems) May 20, 2019
“The first wave,” which started in 2017 and grew in 2018, “was crypto funds and index products. So I think you still see a lot of family offices or endowments or others not directly buying Bitcoin, but investing in funds. If you look at a crypto fund like paradigm, it has Sequoia in it, it has Yale’s endowment in it–it has a whole slew of family offices and endowments.”
“And so, you know–you haven’t seen a lot of the direct investing there, but you do see this growing group of crypto funds in addition to Paradigm,” including Paradigm, Multicoin, and Polychain. “Many people are investing through the crypto funds, and I think that’s part of the first wave, [in addition] to the index products like Bitwise.”
“The second wave,” which Marc believes started in 2019, has a lot more to do with “quant funds–the ability to go both go long and go short.” This also includes “lending markets and the ability to borrow.”
Marc has also observed “a lot of market makers enter to provide more liquidity on exchanges–really large market-making shops in Chicago and New York and globally.”
A wave of “big tech” is headed for crypto in 2020
In 2020, Marc predicts that the next rush of institutional capital into crypto will come from a “big tech wave,” which includes Facebook.
“We were expecting maybe Morgan Stanley or Goldman or JPMorgan to be more involved in crypto in 2017 when we were talking about when the institutions [would be] coming. But we’ve seen now some of the world’s largest institutions at least stake a claim and say that they’re coming–Facebook is a huge example of that, but there’s also Square and SoFi, and others as well.”
“So, I think that this next 2020 wave of ‘institutional’ investors is really these large tech firms,” he said. “And I think that down the road, you definitely will see more from the traditional asset managers–right now, we see more of the family offices who have broader discretionary ability to invest in things, or funds that are primarily hedge funds run by a couple parts.”
“The larger asset managers will also eventually come, but to get them involved, you need better infrastructure–and you also need more use cases, and I think you need more scalable protocols and mass adoption.”
“But that’s what’s exciting about this upcoming tech wave,” he said. “I think they have a lot of the distribution mechanisms to really help that.”
This was an excerpt. To hear the rest of Finance Magnates’ interview with Marc Bhargava, please visit us on Soundcloud or Youtube.
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