The latest in NYDIG’s year of institutional partnerships has perhaps the broadest potential for financial inclusion in Bitcoin yet.
NLW is joined today by Robby Gutmann, CEO of NYDIG. NYDIG is quickly emerging as one of the leading companies helping onboard institutions to bitcoin. This year, it received investment from and announced partnerships with companies including MassMutual, New York Life, Liberty Mutual, Morgan Stanley and others.
In this episode, Gutmann discusses why the firm’s latest partnership with bank software provider FIS could represent the biggest opportunity yet for bringing bitcoin to the masses.
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Welcome back to “The Breakdown” with me, NLW. It’s a daily podcast on macro, bitcoin and the big picture power shifts remaking our world. “The Breakdown” is sponsored by Nexo.io, NEAR.org and Genesis Trading, and produced and distributed by CoinDesk.
What’s going on guys, it is Wednesday, May 5, and today I am joined by Robby Gutmann. Robbie is the CEO of NYDIG, one of the fastest-growing companies helping institutions onboard to bitcoin. Over the last few months, NYDIG has announced partnerships with everyone from insurance companies like Mass Mutual to funds with Morgan Stanley, to the very exciting announcement that they’re sharing today, which has the potential to open up bitcoin access to some 300 million checking accounts. So without any further ado, let’s hear about that right now.
All right, Robbie, welcome back to the breakdown. How are you?
Robby Gutmann 01:33
Nathaniel, I’m well, thank you. Thanks for having me back.
It feels like we’ve lived years, decades, eternities since you you were on the show. It’s been a crazy few months, I guess.
Robby Gutmann 01:45
Absolutely. I’m excited to be back and talk about all the things that we’ve been working on.
So let’s kick in with the big news from today, this announcement of a new partnership with FIS. Give us the context, the background how the conversation started, I mean, maybe let’s start with I guess what the deal actually is?
Robby Gutmann 02:02
Sure, the deal is a partnership with FIS to power a core module, where they will make a set of bitcoin-related services available to all of the banks that want it, that leverage their core. And we’re extremely excited about this. So I mean, as you know, our product in this context is a set of APIs that allow financial institutions to develop bitcoin and bitcoin-related services. And so to be chosen by FIS, to allow them to bring this to market is very exciting and validating for us, and frankly, what it means for the world and for bitcoin for the continued path to financial inclusion of everyone being able to access bitcoin is very exciting for us.
Before we get into that, it’d be helpful to have a little bit more context about FIS, because this is kind of one of those organizations that so many people interact with without even really realizing it.
Robby Gutmann 03:07
Maybe I can start by telling you a story. This story starts in late summer, early fall 2019, which feels like a lifetime ago at this point. And at that time, I met a gentleman named Patrick Sells and at the time, Patrick cells was working for a bank here in New York called Quantic Bank. And Quantic is a great example of the kind of institution that uses FIS. So, in the United States, very few banks develop their own software to drive their core processes. And instead, they use a third-party core, it’s called, made by a company like FIS. And the context here was Patrick had a really really, really awesome idea, but a big problem. And his awesome idea was he wanted the bank to launch a bitcoin debit rewards card. This is a card that would pay his account holders rewards in bitcoin instead of dollars or toasters, every time they swipe their debit card. And his problem was that he had already tried to bring this to market with two different other big crypto providers. And they they hadn’t been able to get there on the technology integration with FIS and in particular on the regulatory engagement with the OCC. So we got connected with him. And he walked through what he wanted to do his challenge and we said Challenge accepted. And it was the start of a really interesting opportunity to get to know actually both Quantic and Patrick and FIS, because Quantic used the FIS core. And ultimately it took about a year of work, but we got the product off the ground, got the tech integration done, spent a lot of time with the OCC on exactly what it would look like what it meant for Quantic, what it meant for Quantic’s customers, in particular safety and soundness of the of the banking system and protection of the customers. That led ultimately, to now Patrick works with us at NYDIG. He runs a business called Bank Solutions, where we work with banks and bank providers like Quantic and FIS and now dozens of others, for them to bring bitcoin and bitcoin-related products and services to their customers under their brand. And this is one of the fastest-growing areas we’ve seen at NYDIG, making our technology available via these APIs for these branded integrations.
I guess just to kind of finish off this story, what scale is FIS operating at?
Robby Gutmann 05:56
FIS, is the underlying technology behind something like 300 million checking accounts in the U.S. alone. So, immense scale, as a provider, as a firm, and really a new immense scale for who is going to be able to access bitcoin, via this partnership, first in the U.S., but ultimately abroad as well.
When we were kind of discussing this, in advance of the show, you mentioned that part of what had you guys so excited about this was the game changer for financial inclusion. So I’d love to hear a little bit more about how you see that playing out and just how that fits into your operations as a whole.
Robby Gutmann 06:36
Absolutely, you know, I think we think about this in a big arc, and it’s gonna take a long time. But if you go back to the beginning of Bitcoin, it was really only available to extremely technically savvy people. I told you the story last time of buying the first bitcoin, you know, thinking back to running bitcoin-d, on the command line on a on a Linux VM. It was not easily accessible by my mom, for example. That was kind of period one, we’re really only accessible to technically savvy people. Then you had what we kind of think of as phase two, where you had amazing companies like Coinbase, for example, bring out products and services that lowered the bar a lot from a technically savvy perspective, but they had this requirement that you had to trust a new financial brand. And if you zoom way out into the big picture, at least in the US today, there’s still a very small fraction of people, we think something like 20%, at most, that are willing to do that. Most Americans have some subset of a bank account, a brokerage account, and an insurance account, and are not really in a position to add an additional financial relationship to that either from a skillset perspective or a risk perspective, or just like a brand-trust perspective. And that in a lot of ways, is what led us to start NYDIG at first and kind of a roundabout way with the observation that we talked about last time, that institutional investors are our clients and our Stone Ridge Asset Management business and fiduciaries in other contexts, couldn’t really use either of these solutions; they weren’t going to be managing their own keys, as a fiduciary on behalf of their clients, and they weren’t going to be using the consumer retail solutions. So that that was where our initial product came into play was to widen the aperture of who bitcoin was available to. It’s funny, it’s a little bit backwards from what you think of in a financial-inclusion narrative to say, well, you’re going up the chain to institutional investors. And that’s exactly right. And that brings us to this FIS partnership, where one of the things we’re most excited about is what we think of as phase four. And really, phase two for us, is just bringing this to a much broader swath of people. And there have been two parts of that with partnerships that we’ve announced recently. One was our partnership with Morgan Stanley, to bring a fund to their wealth management platform. That really again and a little bit backwards from what you normally think of in a financial-inclusion narrative. But in the big picture of bitcoin, it’s true. How to make this available to wealthy and mass-affluent Americans that primarily conduct their lives through financial advisors. And then the second part is the much much, much broader angle of working with FIS to bring it to all of the Americans that just have a bank account and aren’t in a position either to do it through a financial advisor or to add an additional financial relationship to their life. That’s where we are today, and then, you know, I’m excited to come bext time and talk about the things that we’re working on down in the lab today, that would really be the next step from a financial-inclusion angle beyond people that have a, you know, US dollar balance in a bank account.
It’s fascinating, in some ways, you’re basically seeing, or you guys are looking at each of these different parties separated potentially dramatically by the numbers in their accounts, but still having their financial relationships mediated by some key gatekeeper who needed to be, kind of, on the bitcoin train. In the case of the wealthy, Morgan Stanley, in the case of, you know, everyone, else their existing financial relationships. Is that fair?
Robby Gutmann 12:14
That’s exactly right. And with FIS, you could even say they’re actually a couple layers of intermediation here. There’s the software platform that underpins your community bank, for example. And then there’s the bank itself that actually owns the customer relationship.
You guys have been kind of like a news a week or every couple times a week, kind of on a clip like that this year. The common thread of all of these announcements is almost like big institution x, who’s not involved in bitcoin yet, is now getting involved in some way. And it’s always sort of some combination of partnership and investment. But I guess one of the key themes has been insurance. You even just mentioned that now, in terms of where the normal kind of financial relationships are for people. I’d love to hear more about the thesis that you guys have around insurance. I think if I’m correct, that you guys actually now officially have an insurance services division that’s kind of unto itself within the organization, is that right?
Robby Gutmann 13:11
That’s exactly right. Insurance is one of the core financial relationships at, kind of, all or almost all wealth levels, that enables human flourishing. And so we really see two important aspects of our engagement with the insurance industry. And, you’re right, we have actually now broadened and defined a couple of different parts of our engagement with the insurance industry. So, part one, which is really focused on life and annuity companies, is helping them think about investing their general account in bitcoin. And they’re the backdrop is like, a lot of investors in the world, looking out at the yield environment, and asking real hard, honest, important questions about whether the amount of yield available from the kinds of investments they’ve historically made, generally, government and corporate bonds, are going to fund their long datef dollar liabilities. And, in the best interest of their policyholders, thinking about other investments they need to be making to make sure they can make good on those obligations. And I have, as I’ve mentioned before, a tremendous amount of respect for the investment functions in these organizations. They’re very sophisticated, they’re very thoughtful, they’re very thorough in their diligence. But once they make a decision, they go and they work really hard. That’s in a lot of ways that within the broader context of bitcoin, the asset. You know, you hear corporations asking this same question framed slightly differently, you know, how do I protect the purchasing power of my fiat revenue? In the insurance company doing account context, it’s how do I protect my policyholders’ fiat obligations over the long term? The other aspect, that in a lot of ways is very parallel to the FIS announcement, is actually building products and services around bitcoin for the insurance companies to make available to their clients. Things like getting a part of a claim paid in bitcoin, or getting part of an annuity payment paid in Bitcoin. Those are a couple of simple examples. We do foresee, built to top our technology layer, a flourishing of creativity of what these companies are going to be able to do, in terms of the products and services they develop.
What is the demand state for those? Now I’ve seen some people kind of react, like that’s really cool. But like, who’s out there demanding this? What are the benefits of those sort of bitcoin-denominated type products?
Robby Gutmann 16:01
We hear a lot of demand from insurance companies from the product groups inside insurance companies. I think there’s a kind of bigger picture narrative going on, in terms of, you know, thinking about incumbent financial services providers, and fintechs, which is incumbent financial services providers want to make sure that they’re staying relevant to their customers, and who they foresee will be their customers over the next couple of decades, I’d say. So I think it’s a mix of what the demand is today, as well as what they foresee the demand to be over the next couple of decades.
So this is actually super-interesting, a great segue to my next question, which is really the kind of the broadest question that I have for you in some ways, which has to do with shifts evolutions changes in the institutional narrative around bitcoin, you know, since we last talk six months ago. It sounds to me like part of what I’m hearing from you is that, the one piece which we’ve all been watching for a while, which is the attraction of bitcoin as an asset to hold for its financial properties, for its yield properties, for its, you know, etc, etc. This has been kind of the large narrative arc over the last year now. But it also sounds like there’s a piece of this that’s emerging too, which has to do with a retrofitting of the systems to cater to a demand, assuming that it’s not just institutions who are interested in bitcoin, but individuals who make up their customer base as well. That’s something that I’m hearing, I’d love to hear more on that if that’s actually true. But I’d also love to hear just, kind of, more what you guys are seeing from an evolutionary perspective around the narrative bitcoin within these big institutions.
Robby Gutmann 17:54
I think, in the end, almost every institution is operating on behalf of individuals. So a pension fund, for example, is you know, oftentimes you think of that as like the canonical institutional investor. What is that except the lifetime savings of a collection of individuals? So I think what’s really, in this broad narrative that we’ve been talking about, is how the intermediaries or managers or fiduciaries over these pools of assets, think about where bitcoin does or doesn’t fit in the portfolio. And then I think the second part, relatedly, is the financial services providers, for individuals that make their own decisions for their wealth. And in the end, we see it the same way. We want to have the set of products and services that, no matter what the consumer that faces us needs, that we have a solution for him or her, to make bitcoin available to whatever they need. So, if that’s a pension fund that’s used to consuming asset management products, well, we have a whole suite of asset management products that we make available to the pension fund or develop something customized that specifically meets their needs. If it’s a brokerage house, that is in the investment advisory business, well, then we have products for them too. If it’s a brokerage house that is much more focused on self-directed trading, that starts to get much more into a technical integration of pipes and plumbing and execution and custody. But we see it all the same way, of making a set of products and services, whether those are asset management products or APIs to integrate with, so that financial information theories can bring bitcoin safely to everyone they touch.
Has anything surprised you about your conversations with institutions over the last three months?
Robby Gutmann 20:12
I think the rapidity, the speed with which some of these organizations are prepared to move and then do move, has surprised me. I think it’s been way faster than I might have expected, just generally very exciting and constructive.
The average consumer on “Bitcoin Twitter” is getting only the end state conversations with these institutions. We’ve created a situation where there’s so much news coming so fast, that it’s almost like people are waiting for the other shoe to drop in for it to just stop, you know what I mean? And so it’s like, if there’s not news for for six days or seven days, it’s like, “oh, I guess the institutions must be turning away.” And so I think part of what’s great to hear is just how dynamic it is, basically, that the conversation is in the same place that it was even a year ago, or even six months ago.
Robby Gutmann 21:08
Oh, not even close. The conversation changes and moves forward every day. And it’s happening everywhere.
One question kind of around that too, and evolving attitudes is, I think I remember hearing, you know, on some podcast or some interview – a few months ago, someone asked about whether any of these conversations were touching on ETH any other crypto assets. And obviously since then, those markets have heated up much more significantly. How strictly focused on bitcoin are these conversations? I know that’s kind of where your focus remains, but are things like DEFI starting to enter the conversation, or even just the awareness? Or is it still pretty focused on just the big world that is bitcoin?
Robby Gutmann 21:48
Our conversations are very focused on bitcoin. And I think maybe I’ll leave you with another story as well, as I’ve thought about, like, why is that? And so as I think I mentioned to you last time, I started my career at Morgan Stanley working for a guy named Alan Thomas, who runs the equities business today. And Alan is such an awesome badass guy, and I learned so much from him. And there really is very little that I’ve managed to achieve in my professional career that I can’t trace directly back to things I I learned from him. When I started at Morgan Stanley, one of the observations I quickly made was, one of the reasons we were successful in the businesses that we were successful in that I was working in, is we were just better than our competitors at Morgan Stanley, in producing and maintaining large-scale distributed software systems. Alan was very involved from a business perspective, in that mindset, and I learned a couple of really important things from him about this. So first, you want to be really, really, really, really careful about how you make changes in production. So you definitely want to be listening to your customers, and you write everything down that they might want. But you actually make very few changes to the system. And you make them very thoughtfully with lots of testing. And the second lesson was, all of the IP, really all of the value accrues to a system running in production. And so the longer the system runs in the production, just the more you learn, the more you know. So I think about those two lessons a lot when I think about the kind of quote-unquote crypto ecosystems or what’s going on in bitcoin versus ethereum, or central bank digital currencies and stablecoins. You know, the first is there’s just different questions being asked that are answered by each of these technologies. So I’d say there’s long wind-up to answering your question, which is, at least in our conversations, this question about, “will we see an open source monetary system to grow and compliment the larger scale closed fiat systems?” A progressive dawning awareness that the answer to that question is probably “yes.” And, of all of the things that exist to be the open-source reserve asset underpinning an open-source, monetary system. Bitcoin is by far the best-designed and most well-networked thing today. And, given the network-effect inherent in this question, seems very unlikely to be unseated, as the answer to that question, as distinct from any of the other questions being asked – “do we need a giant open source governance layer? Do we need faster dollar settlement networks?” You know the answer those questions might all be “yes,” but they’re different questions than what we hear being focused on. Then the second thing To the Morgan Stanley and Alan Thomas story is, if you just look at these software systems, in our view, and the people that we talked to, given their risk tolerance, which is very, very, very limited, bitcoin is just in a category of itself today, in terms of, number one, how long the system has been running in production, and the lessons learned, and IP that has accrued as a result of that. And number two, the way the community approaches making changes to the system in a very thoughtful, very slow, very methodical way – that’s not lost on the institutional investors that we’re talking to. These are smart, sophisticated, thoughtful people that are successful because they understand a thing or two about running large-scale distributed software systems. And so they see that and they pay attention. That’s what we’re seeing. And that’s my best guess as to why that
Makes a ton of sense. And I think honestly, it’s a pretty good place to close this conversation. I guess I might just ask one more question, which has to do with looking out forward, which is what’s getting you guys most excited right now, you know, as you survey though, the next six months, the rest of this year, and of course, without giving any details about specific things that you’re working on?
Robby Gutmann 26:24
Yeah, I mean, the probably unsatisfying answer is, everything. We just have such a good team, so many opportunities in front of us, such a big funding base, such a great culture, and we just love to build and there’s so many things to build. And so maybe I would close it as, you know, anyone out there listening that wants to come join us and build the next generation of the open financial system, please give us a call, email email@example.com. Reach out, come be a part of this, of changing the world.
Awesome. Well, Robbie, always great to have you on the show, excited to hear the next big announcement. And, until then, keep up the good work.
Robby Gutmann 27:09
Awesome. Thanks, Nathaniel. Great to be here and excited to see you next time.
This is the second time that Robbie has joined me on “The Breakdown.” The last time was last November, and we were all thrilled that the price of Bitcoin was holding above $16,000. Since then, the price has more than tripled. A new wave of institutions has come in. The industry has been elevated to the fore of the macro conversation like never before. Yet there is a sense you can feel across “Bitcoin Twitter,” of waiting for the other shoe to drop, like something is going to ruin the fun. Every time the price retraces, people call the bull market over. They say things like, “oh look, there isn’t enough institutional buying pressure anymore, it must be done.” I think one of the big takeaways from this conversation that you just heard, is that the amount of institutional bitcoin activity that we’re privy to is a tiny, tiny fraction of the whole. Those people who are deepest in those conversations, day-in and day-out, just keep getting more excited every time I talk to them. We can and should debate things like “supercycle theory” and just how different this time is. But there is no denying that, for now, this Bitcoin bull is built on a foundation of new buyers that are still just getting started. Thanks for listening guys, and until tomorrow, be safe and take care of each other. Peace.