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Juthica Chou on The First Physically Settled Bitcoin Futures

Peter McCormack
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Juthica Chou on The First Physically Settled Bitcoin Futures - WBD128 Peter McCormack

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Interview Location: New York
Interview Date: Thursday 11th, July
Company: LedgerX
Role: Co-founder and Chief Operating and Risk Manager

The growth in Bitcoin derivatives has led to an increase in interest from Wall Street and institutional investors. The market is clouded by regulatory uncertainty and all current Bitcoin futures are cash-settled, which brings additional problems.

The market took a significant step forward when LedgerX announced that they had received regulatory approval to launch the first regulated physically settled Bitcoin futures contracts. LedgerX also announced the launch of a new trading platform called Omni, which, for the first time, will give US retail investors access to regulated derivatives markets.

The physical settlement in Bitcoin is another signal of a maturing market. It means that when a contract expires, the buyer will now receive Bitcoin as opposed to fiat, meaning businesses and miners can now bypass the fiat system entirely. 

Will this lead to reduced volatility in the Bitcoin price and bring in more institutional investors? I visited LedgerX in New York and spoke with the Co-founder and COO Juthica Chou. We also discussed:

  • Regulators approach to Bitcoin 

  • The licenses required to operate a regulated exchange

  • Institutional investors

  • Working at Goldman Sachs during the 2008 financial crisis

  • Betting on the Bitcoin halvening

  • $20k, $25k and $50k contracts

  • Why Bitcoin is better than Gold

  • Wall Street's interest in Bitcoin

  • LedgerX’s competition

TIMESTAMPS

00:02:56: Introductions 
00:04:54: Delving into Juthica’s background
00:08:24: Exploring the launch of Ledger X, including strategy and licensing requirements
00:12:29: Why derivatives products are an important additive to markets=
00:15:41: Touching on why physically settling Bitcoin futures is important 
00:17:33: Discussing the challenges Juthica has faced in launching these new Bitcoin futures contracts
00:21:53: What is the current status of these new physically settled futures contracts?
00:23:14: Touching on Omni, LedgerX’s upcoming retail product and how this differs to other exchanges
00:25:01: Discussing some of the contracts available and the infrastructure behind the contracts
00:30:07: Touching on LedgerX’s relationship with the CFTC and other regulators
00:31:36: Juthica’s thoughts on how far Bitcoin has come and where her conviction hails from
00:35:40: Discussing Wall Street, Libra and whether future regulation would be a cause for concern
00:41:06: Exploring what aspects of the Bitcoin ecosystem Juthica would like to improve
00:43:18: Final comments and how to stay in touch

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TRANSCRIPTION

Peter McCormack: Hello Juthica. Thank you for inviting me to your office.

Juthica Chou: Thank you for having me!

Peter McCormack: Welcome to the show and congratulations!

Juthica Chou: Thank you!

Peter McCormack: What was that like then? You were the first to the market with a physically settled Bitcoin future?

Juthica Chou: So it's not our first time being first. We actually had been working with the CFTC back since 2014, when we were the first to get a license even for any physically settled derivatives at all and then we got that license in 2017. So in a lot of ways this time around, while the significance of being first is more of note because there are obviously larger competitors out there, for us it was a lot easier than that initial journey.

But overall I think we have a good relationship with the CFTC. We just focus on making a good product that satisfies all the regulations and it's gratifying when the regulators reward that with the appropriate licenses.

Peter McCormack: So why are you guys able to always do it first?

Juthica Chou: So the first time around it was because we were just really early. We submitted our applications initially in September 2014 and I think that was arguably too early, but that's why we were first, the first time around. This time around, I think it's just because we're pretty good at what we do. We don't do a lot of stuff around here, our breadth is not very wide, but if it comes to the CFTC and Bitcoin derivatives, I think that's really our bread and butter. So this time around, I think we just did it best.

Peter McCormack: So are you going to get the first ETF as well?

Juthica Chou: So we purposely don't do anything in the SEC space and I don't really want to. I don't foresee LedgerX really getting into the SEC space. I have my own opinions on ETFs, but I think we want to stay hyper focused and I think the success that we've had to date, is because we've been super laser focused on this one area and creating great products in this area.

Peter McCormack: All right. So let's dig into the background, because I want to know about you and I want to know about the company. So firstly, can you just give me your background? I mean, I know it of course, but it'd be great for the people who listen to the show to know your background and then how you came to form LedgerX and why you became involved in the Bitcoin space.

Juthica Chou: Sure! So personally my background, I was math and computer science by training at MIT along with Paul, who's my husband and our CEO. Then when I graduated in 2006, basically, even at MIT, I think it was something like 60-70% of engineers who just went and worked in finance and consulting. There were a lot of jobs at the time!

Peter McCormack: You were MIT?

Juthica Chou: MIT yes.

Peter McCormack: So I was there a few weeks ago and I've got my show coming out tomorrow is with Neha.

Juthica Chou: Oh, great yeah! Yeah, it's really great. I actually haven't gone back too recently, but it's great to see the stuff that they're doing in the space and it makes a lot of sense. I mean they have a lot of different departments, where I think they can make meaningful contributions to crypto.

Peter McCormack: Yeah and their Bitcoin Expo earlier in the year, was probably in terms of speaker lists, was probably the best event I've been to.

Juthica Chou: Yeah, it looked really good. I didn't go but it looked like it was a really solid event!

Peter McCormack: You missed out! Anyway, sorry I interrupted you, please carry on.

Juthica Chou: So then I worked in finance for a bit, so I spent five years doing high-frequency options trading at Goldman Sachs. So that was really algorithmic trading, pretty quantitative models and then after that I moved to a different trading desk within Goldman. I moved to the franchise side, which is more customer facing, taking down large trades, which was really informative for me for just how Goldman operates as a franchise.

Then kind of in parallel, Paul also worked at Goldman, he did more quantitative stock trading and he had left Goldman after I think four years to go to YCombinator on the west coast to start a different unrelated company to LedgerX. But it was at that time, so he was in the summer 2011 batch. So that was when Bitcoin first had that price spike up to $30 and so he got very interested in it and we took an interest in it, both from the, I would say the computer science side, as well as the financial side.

Actually he wrote up this, I remember it even from that summer, he wrote up a pretty long thing about how it's strictly superior to gold and why we should invest in it and take it seriously. So we did kind of play around with it personally, but I think in terms of the ecosystem, it was still really, really wild. It was early days and best practices for security weren't established and stuff, so we mostly just followed it. Then a couple of years later, we talked about doing derivatives for Bitcoin for a while, we saw it as a real need.

So we were always set on that, but the regulatory uncertainty was really the big question mark. So in November 2013, there were the Senate hearings where it was kind of clear that the government was not going to shut down Bitcoin and that they were at least going to take some approach to... It might take a while, but they're at least going to take some approach to how you can operate a Bitcoin business in the US.

So we kind of decided at that point to start the company. I think we were probably a little bit naive in terms of what it would take to actually get licensed, but I think maybe as entrepreneurs you need that night appetite sometimes!

Peter McCormack: Yeah, so I completely agree and I think a lot of the innovation that's happened in the Bitcoin space is people just going, "well, let's just go ahead and figure it out anyway!" But it does feel like, well for me as an outsider looking in an America, that all the regulators are a lot more open minded to Bitcoin than I would have first thought they would be

Juthica Chou: I think that's generally true, though it has taken time. It's been a number of years now, but I think if I look at the US versus some other countries or versus Europe, I think a lot of it is driven by the entrepreneurs, where the entrepreneur kind of forced the hand of regulators, whether it's through what we did, where we just submitted an application, or whether it's through entrepreneurs who will just operate if there's no clarity.

I think it's really driven by the private sector and the public sector then just has no choice but to keep up. But I would say with us, we deal with the CFTC and they're quite... I think in general, entrepreneurs do not give the regulators enough credit. I think they are quite sophisticated in their understanding of cryptocurrency and a lot of the related issues.

Peter McCormack: Yeah, I'm quite interested to see who's going to take over after Christopher Giancarlo, because he's been very open minded, very forward thinking with regards to Bitcoin. I think he's been a real asset to the innovation within the space.

Juthica Chou: Yeah, absolutely. Obviously we got all of our licenses under him. I believe Heath Tarbert is going to take over and I think he comes from a Treasury background. So not the same private sector background that Giancarlo had.

Peter McCormack: So what licenses did you have to get to for your initial launch?

Juthica Chou: Initially we had two licenses. So we had an exchange license or have I should say. We have three licenses now, but initially it was two. One is an exchange license. So first we got the swap execution facility which allows us to do swaps on an exchange and the exchange is a pretty easy license to get, it just matches trades.

The other license, which is the more critical and difficult one is the Derivatives Clearing Organization. That one is a license that allows us to custody both fiat and cryptocurrency, but in our case Bitcoin, on behalf of customers and for customers. So those two licenses were both necessary for us to initially launch back in 2017.

Peter McCormack: It's funny because people are always saying, "oh when are the institutions coming?" People want institutions coming because they want the price obviously to go up, but you only service institutions right now?

Juthica Chou: Correct. So I think the definition of institution is... So first I think it's a little bit different depending on your context. So for us, it's limited by the swap execution facility license that we have and so that basically means roughly any individual or entity with over $5 to $10 million. So while we are institutional, we service a number of high net worth individuals, some that are maybe high net worth from the traditional space and then some whose net worth comes from the crypto space from having been in it for a while.

Then we service trading firms and we service smaller hedge funds. But I think sometimes when people talk about institutions, they are thinking more of like the Goldman Sachs of the world and I think Bitcoin is still a little bit early for those guys to get involved.

Peter McCormack: Why did you target institutions?

Juthica Chou: It was kind of going back to how early we were and the path that we saw to really getting a platform that was regulated and up and running and starting with a base of institutional customers was to be quite frank, just a lot easier from a banking point of view and from a regulatory point of view. It gave the regulators comfort, it gave the banks comfort and so it kind of helped us get over that initial line of getting the license. Then it allowed us to prove to the regulators, prove to the banks, prove our model and then it was a lot easier to get the retail license after that.

Peter McCormack: Okay. So I'm going to get into derivatives. I want to know though from you, why are they important? It's more than just having a product out there that people can use, they're actually important for market structures. So I've read, I can't remember if it was on your website or a PR release, but you talked about what happened during the financial crisis.

I think I've got the quote here down, I can read it to you, "the structural problems are strikingly similar to causes of the financial crisis in 2008, when bilateral OTC credit default swap trades between banks were opaque and secret, until the problems become too large to ignore and at a hair's width of being unfixable." So can you tell me about this, because it's more than just about having a product in the market, right?

Juthica Chou: So I think derivatives products in general are an important addition to markets. They provide an element, if you compare it to, let's say trading Bitcoin. In our case, we list options and derivatives like options, provide additional factors or ways that people can get exposure. So for example, options have a strike price associated with them, which is the price at which people can buy or sell Bitcoin and then they have an expiration date associated with them, which is the piece that actually makes them so interesting and it makes them so valuable in a lot of ways.

Those are pieces that you don't get from just buying and selling options and there are reasons why those can be very important. So for example, in Bitcoin, a lot of people are focused on the halvening, which is expected in May of next year. So there could be a lot of reasons why you'd want a derivative contract that expires in June 2020. Something that far out that's more specifically structured to be able to hedge risk that people might have around that, whether they're a miner and they expect... Well the reward will go down, but whether they're a miner or whether they're more of a consumer facing company that is paying transaction fees and sending those to the Blockchain.

So I think they're important contracts, but they have to be done correctly and that's why LedgerX, it took us a while to get our licenses because we were so focused on making sure that we have the Clearing set up. The Clearing is where we custody the Dollars, we custody Bitcoin, we guarantee every derivatives trade and I think some other approaches could have been and were faster to market without that element, but that's exactly where you get into counter party risk.

You get into a lot of the issues that ultimately led to 2008 when you had the swaps default and the cascading effects of everybody really getting hurt from it.

Peter McCormack: And you saw that happen? You lived through it?

Juthica Chou: Yeah, Paul and I were both at Goldman at the time.

Peter McCormack: What was it like?

Juthica Chou: Honestly we were probably too junior to see the really interesting stuff. But I think it was the right... At that point, I'd probably been at Goldman three years and I think it was the right level of really learning a lot about convexity in real life and how things can get really bad, really quickly and a lot of correlations and the way that you view the world can completely break down. I think there's no teaching that, you just almost have to live through it and then it kind of stays with you for a while.

Peter McCormack: Okay. So physically settled Bitcoin futures. Why is physically settled important? Why is this an important addition to the market? How is it different from the current Bitcoin futures?

Juthica Chou: It's important for a couple of reasons. One is that we want to cater to customers who deal in Bitcoin. We're not just here to create a synthetic contract that's just a speculator's market and we talked about how derivatives can be and are important hedging tools. But if you look at it, a lot of the hedgers, whether in the traditional commodity space or in Bitcoin space, the hedgers deal in the physical.

They're miners that are earning Bitcoin or they're individuals that hold Bitcoin and so for them, the most appropriate hedge is actually something that settles to the physical, because that's the world that they deal in. They're not just financial players. It's important to us because even dating back to when we first started LedgerX, one of the views that we had was that companies could warehouse more Bitcoin risk, if there were derivatives products for them to hedge and we want companies that are providing real services using Bitcoin, we want them to be able to grow their businesses by having the tools to be able to manage their balance sheet.

We think that's just really good for the Bitcoin ecosystem in general. So it's important in terms of the product side and then I would say in terms of the day to day, it's also important because we can just take Bitcoin as collateral. About a third of our customers, our participant, only ever deposit Bitcoin and they can deposit it 24/7, 365 days.

So if you've got a huge $200 move at 10:00 PM on a Thursday, they can just send us Bitcoin and they can trade it. That's something that you can't really do in the current banking system and it's only really possible because we deal in the physical Bitcoin space.

Peter McCormack: So what are the biggest challenges then that have been involved in creating that. Obviously custody is one. Security is obviously an issue. Can you talk me through that and if there are things that you can't tell me, I understand!

Juthica Chou: At a high level, the challenge is entirely custody and security for sure. There's no question that when you deal in the physical, that that's I think where for us, as a technology company where a lot of our resources have been spent and a lot of our mind share goes, but I think it's worth it. I think it's worth it if you can ultimately provide a better product to customers.

For us, I kind of always say this and I think people maybe don't believe me, but it really is true that we custody Bitcoin on behalf of customers for purposes of settling derivatives transactions, but I don't really want LedgerX to be a centralized custodian, because that's not what Bitcoin is about.

If Bitcoin came around and then the world looks like you have these large companies that are like the new versions of Bank of New York Mellon custodying your Bitcoin for you, I don't think that that's a great thing. I really do think that people should hold their own coins and we just hold them for purposes of the derivatives transactions.

Peter McCormack: Have you outsourced the custody?

Juthica Chou: No!

Peter McCormack: Wow! So you do it yourself! Does that leave you with a few sleepless nights sometimes thinking about things?

Juthica Chou: I mean it's probably on par with, I guess how other Bitcoin companies feel who also do the custody, but it's important... This is not just specific to custody but in general, if there's some element that's so critical to the business, I think it's important to do certain things in house and it's important for these stakeholders to kind of feel the magnitude and understand the magnitude of what they are doing and the responsibility that they are taking on.

Peter McCormack: Yeah and it was also quite nice that as you mentioned previously, you're talking about keeping it as Bitcoin, which is better for the Bitcoin space. I guess as we have more companies adopting and accepting Bitcoin, it starts to become a kind of a circular economy. I think that's going to benefit Bitcoin and hopefully get us away from some of the volatility eventually. Do you feel similar?

Juthica Chou: Yeah, I think the more that people are using Bitcoin, the more that there are use cases that are not... I think a lot of the volatility is during speculation and speculation is an important part of markets. I think speculation sometimes gets a bad rap but it's not that different from just investing and just allocating capital

So a lot of speculation is just people allocating their capital into crypto away from maybe traditional markets. So I think in general it's an important part, but a lot of that drives volatility,, especially if the market candle was absorbed or if you have margin leverage trading overseas.

The more that it becomes stabilized and used, I think the volatility will come down. Derivatives products like options in particular, are known for reducing volatility as well. I think there's a lot of studies in other markets that the introduction of options, usually results in lower volatility.

Peter McCormack: Was it you also, who said that physically settled Bitcoin futures are less open to manipulation?

Juthica Chou: It might've been, yeah, because ultimately the contract... So if you think about how the contracts settle, the settlement is that you just get Bitcoin. So if you buy a futures contract, when it settles, you just receive Bitcoin. How other contracts settle that are not physically settled, so for example, the cash settled futures that exist right now, is you get a US dollar amount, that is equivalent to essentially how many contracts you own, the price you own them at and then the difference between that price and the settlement price.

Where the manipulation comes in is, what is that settlement price? With Bitcoin, it could be $13,000 one day, $11,000 another day and it can move really easily. So I think a lot of the concerns, which are very valid concerns are that if you say, "okay, this spot exchange at 4:00 PM Eastern, this is going to be the price at which this contract will settle."

Well, it doesn't take a lot of money for somebody to be able to move it and then now that really changes the payoff from the contract. I think that's why you see a lot of these futures contracts being used more for trading, rather than people holding for investment. But physically settled doesn't have that issue, you just get Bitcoin no matter what.

Peter McCormack: Okay, so you're live?

Juthica Chou: Yes!

Peter McCormack: It's not open to everyone yet. You're open to the institutions. You've got a separate retail product as well, Omni?

Juthica Chou: Yes, so we've been open to institutions since October 2017. We have around 300 institutions on the platform and the volumes are going really well and actually our second quarter of 2019 was our best quarter ever. That was just with the institutional volume.

Peter McCormack: Can you talk about how much volume?

Juthica Chou: So the second quarter I think is about 200 million notional of derivatives that traded.

Peter McCormack: It's pretty cool!

Juthica Chou: Yeah, it was great and I think it was really a testament to just a lot of the work and infrastructure that had been put in place and then some credit to the market for more interest in derivatives. I think when anything moves, people come out of the woodwork and they're doing everything from buying puts because they're worried that we crash another few thousand dollars, to selling calls because the volatility is so high that the premium that you can get from selling call options, is really non-insignificant,

Peter McCormack: But you're not far off them from an annualized $1 billion, which is a nice target number!

Juthica Chou: Not at all! I think with the retail platform, we'll see. We're going to take that very carefully. It's very important to us that everything works well. but I think seeing the waitlist and the demand that we have, we're really optimistic about the growth.

Peter McCormack: So is the retail product Omni?

Juthica Chou: Yes.

Peter McCormack: Is it actually being used by people at the moment or is it being tested?

Juthica Chou: It's being tested right now and any day it should be live!

Peter McCormack: Including your mum?

Juthica Chou: Yes, including my mum, who gives very frank feedback!

Peter McCormack: So when that product launches, what kind of KYC do you have to go through to be able to use it? Could I just use it?

Juthica Chou: Well, so you'll have to go through KYC. We already do, even for our institutional customers, we already KYC everybody who comes through. So I would say it's pretty standard. It's not more invasive than if you deal on any regulated exchange, but we do touch fiat.

So I think that's really the distinction, is that if you deal exclusively in crypto, and I think there is a lot of great value in the companies and things that do deal exclusively in crypto, but that's a really different game than if you touch fiat. It's important to have companies that touch crypto and touch fiat, so that people can get their money into crypto and if they need, out of crypto.

Peter McCormack: Right, but how would you say you differ from regular exchanges. For me as a non trader, who's played a little bit with Coinbase Pro, a little bit with Kraken, how is Omni going to be different?

Juthica Chou: Well, so I don't know the platforms themselves to comment on that, but Omni is a derivatives platform, as opposed to some spot exchanges, where you can just buy or sell Bitcoin. Here you'll have access to both buy and sell Bitcoin, to a wide range of options. So you can trade options out to December 2020 up to a $50,000 strike and then additional options like the halvening contract and some of these more exotic derivatives that we plan to offer

Peter McCormack: We're getting a proper New York soundtrack now! I find it when I'm always here. So sorry, you've actually got a contract for the halvening?

Juthica Chou: Yeah and this is actually one that we have, it's filed with the CFTC, so it's on our websites. So the way that this particular contract is designed, is that it's a binary option and it pays out if the halvening occurs before a specific date in the future.

So this is important so that people can speculate, bet, hedge when that halvening will happen. Particularly you could think about miners who will have large economic exposure to it. Then with these contracts, we can essentially back out the dates that the market is expecting the halvening to occur.

Peter McCormack: So it's going to be a really interesting event, because there's multiple factors at play here. Obviously the subsidy is going to drop in half, but also with the subsidy dropping in half, there's less Bitcoin. Does it go to 900 Bitcoin a day that will be released to the market?

Juthica Chou: That sounds right.

Peter McCormack: So therefore there's less supply, so the price might go up. But if the price goes up, then the ASIC manufacturers will increase production. So timing that and playing that, is going to be very interesting and very difficult.

Juthica Chou: Yeah, we already see this. Some of our largest open interest options are June 2020 and we see a lot of activity in the $20,000, $25,000 strike area because I think it's kind of speculation around exactly this issue that you're talking about, when the mining reward goes down, are miners going to be compensated by an increase in price.

Then also, the impact on transaction fees. I mean we don't have contract listed on this yet, but I can envision a derivatives contract based on transaction fees, if people assume that when the reward goes down, the fees are going to go up. What's great about these kinds of contracts is that, we're talking about manipulation, these are basically impossible to manipulate, because they settle to the Bitcoin Blockchain. So you'd have to manipulate the Bitcoin Blockchain. It's by far, out of any financial contracts I've seen, these are the least susceptible to manipulation.

Peter McCormack: Who are the people either side of the trade? Is it you or is it somebody else?

Juthica Chou: It's always other people. So LedgerX just sits in the middle. We're just the platform. So we do the non-sexy stuff of just the infrastructure! So we just sit in the middle, participants come, they match trades either on an anonymous order book, which we have or through a negotiated trading mechanism, where you do know your counterparty and people use that for block trades. 

So when those trades are matched, LedgerX takes care of making sure the collateral is there, of holding the collateral until expiration of guaranteeing that those sides get paid off and then also doing an underappreciated aspect, which is also doing all of the reporting, so that our participants never have to worry about all of the required regulatory reporting.

Peter McCormack: But do you create the contracts?

Juthica Chou: Yes, so we basically design and create what the contracts are. We usually do those in conjunction with participants though. So we make sure that there is sufficient demand. We want people trading a lot of the same contracts. But yes, we do that.

Peter McCormack: So you'll have obviously, say me as a buyer, who wants to buy a futures contract. The person offering the futures contract, could that also be me?

Juthica Chou: No.

Peter McCormack: So that is a specific institution who does that? Are they like a market maker?

Juthica Chou: Well, so we do have market makers. So it can be anyone. I mean, sorry to be clear, it can't be you trading against yourself, but it can be any other individuals. So I'm not allowed to be on the platform, but if I were on the platform, I could be on the other side of it. So it could be, maybe if I was just an individual and I had a futures contract and I just wanted to sell it to get some Dollars, I could do that.

We do have market makers and so their job, as you're alluding to, is to generally be on both sides as people come in and then it can be any sort of hedger that has different constraints. I think derivatives are great like that. There's a lot of different ways that people use them.

Peter McCormack: What kind of interesting pricing are you seeing ahead? Is there anything really stand out?

Juthica Chou: So I think the main thing is that if you look at the Bitcoin volatility curve... So if you look at stocks, typically the way the volatility curves look is that the higher volatility, is more to the downside. So it's more that people are either worried about or would anticipate very large rapid moves to the downside.

But the way that the Bitcoin market is priced in terms of our options, the higher volatility is definitely to the upside. So we see a lot of that $25,000s, even the $50,000 strike calls traded out in December 2020, so we see a lot of people kind of betting on those higher prices up there.

Peter McCormack: $50,000?

Juthica Chou: Yes, the December 2020 $50,000 strike calls traded quantity 30 and I think the price was $1,350 and this was maybe last week. So that gives you a sense of what people are interested in.

Peter McCormack: There's some optimism there! In terms of working with the regulators, you said you have obviously a good relationship with them and you speak to them regularly. Is that a situation whereby you have to have an ongoing debate? You go and meet with them, you sit with them, you talk with them. Is that how it works or are there formal processes you have to go through?

Juthica Chou: There's both. So there's a lot of formality. I think now we're pretty good at it. It wasn't always an easy process to navigate and there's a lot of formality. But I think typically people and we did this too, typically people have informal conversations first, just to sort out the contours of what it is that we're looking to do and make sure that, even if you're not going to get a yes or no, but at least make sure that you kind of feel that there's a general path to do what you want to do. Then it kind of goes into more of the formal process.

Peter McCormack: Are you touching anything outside of Bitcoin?

Juthica Chou: Right now no, it's just Bitcoin.

Peter McCormack: So are you a Bitcoin maximalist platform?

Juthica Chou: Well, if we can list derivatives on other cryptos that fall into the CFTC jurisdiction, we will. We're not going to turn down that business and we have the ability to support custody of other coins. It's just that right now Bitcoin is the only commodity per the CFTC. But at the same time, I wouldn't say I'm super unhappy if we have to focus on Bitcoin. I think Bitcoin's elegance and simplicity leaves a lot to be desired from other altcoins for example.

Peter McCormack: Yeah I've heard very similar things with regards to companies when they started to look at adopting Ethereum. It doesn't matter if it's custody or if it's some kind of trading, always find there's a much more complex product to work with than Bitcoin. People often say, one of the beauties of Bitcoin is it's just so simple.

Juthica Chou: Yeah, absolutely! I think that's why it just so organically took off, is that it was easy for people to start to wrap their head around.

Peter McCormack: Are you surprised how far it's come?

Juthica Chou: I mean, not really. I think in the broad scheme of things it's probably... I don't think it's a "how far it's come", I think it's just the path. I'm surprised at the path it's taken to come here. I was really surprised about that whole like "Blockchain not Bitcoin" thing in 2015, 2016. I did not anticipate that.

Peter McCormack: That was Jamie Dimon.

Juthica Chou: Yeah and that it just like took off and companies pivoted, that was nuts. Then I think I was probably surprised by the number of altcoins that really popped up in 2017 or so. Not just the number of them, but just how those kind of took off too. So I think I've been surprised about the path, but not necessarily where we are today.

Peter McCormack: So you expected Bitcoin to go and get big?

Juthica Chou: I mean we expected it to work. I don't know if I put a number on how big we expected it to get, but there was no question that when we started LedgerX, we were just all in on Bitcoin.

Peter McCormack: Where does your conviction come from?

Juthica Chou: It was well before we started LedgerX actually. I think it was really back in 2011 and again, what sold me was that the fact that it's clearly superior to gold, in every single way. So that as an alternative already, it showed that it was doing something that was not possible before, which in general is already a powerful thing and we operate in a regulated space obviously.

We report things to regulators, but that doesn't underscore the fact that I think it's incredibly powerful that you can just walk around with a USB in your pocket and nobody would know how much Bitcoin you have. So I think it's elements like that, that were just not around and not possible before

Peter McCormack: Peter Shiff wouldn't agree with you though!

Juthica Chou: I know, there's a lot of gold maximalists out there I guess.

Peter McCormack: Yeah, even as a Bitcoin lover, I'm still struggling to explain to people why they should care. I mean I've been talking about it on Facebook again all year, putting little messages out, "now might be a good time to buy" I think at about $4,000, trying to explain it. It's just like a brick wall, I can't seem to get through to people and explain it to people. How do you sell it, because you've obviously got your mum involved now!

Juthica Chou: Yeah it's funny, we always talked about it, but I didn't know that she was actually sold on it until recently. But I mean I think it's hard... One of the difficulties is, especially in the US for example, one of the difficulties is that we don't have a lot of the frictions that Bitcoin supposedly will fix. So for example, we use our credit cards, we interface with the banking system, it's not really that much of a headache and I don't see why we would shift those payments transactions to Bitcoin.

So I think the use cases are a tougher sell in certain environments. But Bitcoin in general and this is what I tell my mum, for example, it's a great alternative. Now, do I think my mum should put all of her money into Bitcoin? Absolutely not, but I think it's a reasonable alternative. I think people in Venezuela would welcome an alternative like that. People in other countries would welcome this alternative and so it offers something that other assets don't.

That's why I think it warrants some amount of investment and attention. But at the same time, I'm pretty realistic that a lot of the people who live comfortable lives, are not going to be touching the use cases every day.

Peter McCormack: And we're here, in pretty much in one of the financial centers of the world, we're in New York. Are you finding a shift here? Are you finding that Wall Street is starting to accept it more or is there still a lot of friction there?

Juthica Chou: I think Wall Street... They're at that level that they're interested. There is a little bit more knowledge than there was before, but I think Wall Street is going to do the same thing it always does, which is that when there's enough opportunity, they'll get involved. Then otherwise, they'll just sit on the sidelines.

Peter McCormack: They just want the money! So if you now look at the ecosystem, obviously you've got competitors coming in. They're are going to be other physically settled future products. Do you see it as a scenario that it's competition or do you see the scenario that you grow the category together?

Juthica Chou: Yeah I think Bitcoin is still in the nascent enough stage, that new entrance into the market are not zero sum and it's not competing in terms of the opportunity set. Just again, it's because Bitcoin is so early, that we want more fiat on and off ramps, on ramps in particular. We want more products that people have access to, we want different market structures that cater to different types of participants. So I think Bitcoin's early and we're not worried about competition.

Peter McCormack: Do you worry about changes in regulation, too much regulation coming in? Do you worry about what might happen with FinCEN? Do these things kind of play on your mind?

Juthica Chou: So we don't interact with FinCEN, because part of the reason we went down the CFTC path was that, by being federally regulated, we're essentially exempt from the state regulations and we didn't want to have to deal with 50 states. We wanted one federal regulator. But in the US, I don't really worry about the regulations that much. I think the regulators are... And actually I can say this for the SEC as well, even though we don't deal with them day to day, I think the regulators are being very reasonable.

They're thoughtful, their concerns are very legitimate. I don't think they're going to do anything brash and if they were going to do anything that would limit innovation, they would've already done it. So yeah, it's not something that I worry about much.

Peter McCormack: I think they care more about Facebook Libra at the moment.

Juthica Chou: Yeah! It's funny, I'm not the biggest fan of Libra, but I was surprised actually at how, and maybe it's just because the Democrats are angry because they think that Facebook is why Trump won or whatever, but I was really surprised at how quick the response was to that.

Peter McCormack: Yeah I haven't seen the hearing yet, but David Marcus was there this week I believe. Yeah, it's funny, I did an interview with Brad Stephens and Spencer Bogart over at Blockchain Capital investors and I had a really good chat with them, but one of the things that Brad said that was really interesting, he said, "Libra's a win-win for Bitcoin, because if it launches, it exposes billions of people to the term cryptocurrency" and hopefully and most likely, some of those people are going to migrate to Bitcoin.

But he said, "if it doesn't launch, if the regulators prevent it launching, it's a win for Bitcoin because it shows the power of Bitcoin, that you can't shut Bitcoin down, but you can shut something like Libra down."

Juthica Chou: I mean it's an interesting point of view. I think the second point is where I'm not as big a fan of Libra, which is just that obviously, it doesn't allow you to create and use a digital currency outside of a third party. The fact that you can shut it down very clearly shows that there's a third party there. I think there's some difficulties in terms of implementation where, once you start getting into stable coins, you're at the mercy of banks and stuff. It's just not a cryptocurrency.

Peter McCormack: And it's boring!

Juthica Chou: Right? I guess people try to say like, "oh, it'd be like a bridge currency", but it's just not as interesting, you're right, it's boring! It's just not as interesting as Bitcoin.

Peter McCormack: I'm kind of split on Libra though. Some days I'm like, "oh, this is going to be cool. This is going to be great" and then other days I'm like, "oh, it is boring." So there's not going to be a Libra future's come into LedgerX?

Juthica Chou: I mean, if it was deemed a commodity, maybe we would, but it's not going to be deemed a commodity. I think the reason why I think I'm a little bit, maybe slightly more negative than what you're saying about Bart or Brad, I forget which one, is that there is an element, even though I kind of generally think that Bitcoin's early and things are positive some, and we're all going to expand the pie, when these efforts come around, there's an element of attracting developer talent and resources and time and energy, that I think otherwise maybe would actually go towards Bitcoin, which would probably be a little better.

Peter McCormack: So you as somebody active in Bitcoin, your husband's active in Bitcoin, do you guys ever stop talking about Bitcoin? Do you have a no Bitcoin rule in the house?!

Juthica Chou: We're always talking about work and I think we just reached the point where we realized we can't avoid it, so we may as well be productive about it!

Peter McCormack: Do you have a lot of synergy as well in your kind of views or do you debate it?

Juthica Chou: Yeah, I mean there's no question that Paul sets the vision of the company. We're both good at different things, I'm a little bit more operational, day to day, probably better at the regulatory stuff, but there's no question that he's much better at the long-term thinking and that's why we got into this, because I found Bitcoin very interesting, but he's better at kind of seeing how things can play out.

Peter McCormack: As you look at the entire market, as a company and people who've got a lot of... You're invested in this, probably personally, you've got your company, this is your mission now. As you look at the Bitcoin ecosystem, what are the things that you think are important? What are the things that you would like to see change? What are the things that really stand out to you that will help improve the ecosystem?

Juthica Chou: I would like more focus for sure. I think that too many companies are trying to be all things to all people. We want to do custody, then we want to have a broker dealer and then we want to do a payment system. I think the focus is important to build great products and more specialization is important for Bitcoin. Then I think a little bit more, maybe it's better now, but at least from the last few years, a little bit more resiliency where Bitcoin is going to go up and down. There's going to be dark periods, there's going to be difficult periods and I think what we saw a couple of years ago, is too many companies that I think were doing good work, kind of tried to pivot to other things that maybe were more opportunistic. So just more focus and resiliency!

Peter McCormack: More focus on Bitcoin and less on alt coins or...

Juthica Chou: Just focus in terms of what services people are trying to provide and not trying to be, kind of the comparison I used once is, companies are trying to be like AOL, where they literally do everything. It's like "we're in the Bitcoin space and we're going to do everything." I think then they just end up with a lot of breadth and not a lot of depth in terms of offering great products and doing great work.

Peter McCormack: I kind of feel like you are talking about Coinbase here?

Juthica Chou: I'm not going to name anyone!

Peter McCormack: I would name Coinbase in that category because they do do everything and it's kind of got a bit ridiculous. When I first signed up to use them, it was so easy to use and it was perfect. That's where I bought my first Bitcoin. Well, actually that's not true, the first one was LocalBitcoins a long time ago, but when I became serious about Bitcoin, it was so easy.

Now when I get an email and it says something like, "learn about 0x and get some free 0x and here's your credit." I think they've lost focus. This is entirely my opinion. This isn't just Juthica's opinion at all, this is entirely my opinion! All right, so look, if people are interested in this, what's coming up, what are the next steps? You said there's a big waiting list, but how do people use this?

Juthica Chou: So we're launching Omni very soon, within days and we're just working through the waiting list and I think it's a great platform for people who want, whether it's access to Bitcoin or trading just Bitcoin, as well as access to options. I think options are a very important tool and they provide a lot of different ways that people can get exposure to Bitcoin, can bet on Bitcoin and even in a more risk managed way as well.

So if let's say, you don't necessarily have enough money to buy one Bitcoin, well you can buy some call options that provide a little bit more leverage and you'll never lose more than the amount of premium that you spend on the options.

Peter McCormack: Okay, so that's interesting. You're kind of tempting me here! Might un-ban myself from trading! Okay, so it launches in the next few days. Are you feeling excited, nervous?

Juthica Chou: It's not our first time launching a product. I think the first launch, I was a lot more nervous. This one I think we have a very stable platform. We understand all of the elements that go into a launch between getting the customers ready, the regulatory, making sure that the technology is tested. So I'm sleeping better ahead of this one, than I did the first time we launched!

Peter McCormack: Okay, so if people want to find out more though, where do they find out?

Juthica Chou: Ledgerx.com. They can apply for Omni and we're sorting through the waitlist as quickly as we can.

Peter McCormack: How big is the waitlist, can you say?

Juthica Chou: I think it's about 3000 right now.

Peter McCormack: Wow! Can I get near the front of it?

Juthica Chou: We can't show preferential treatment.

Peter McCormack: Do you know what, I shouldn't go on it. I don't even have a BitMex account. I've never created a BitMex account because every time I traded, I've been terrible at it.

Juthica Chou: It's funny, I also actually am a terrible trader! I'm better at operating an exchange.

Peter McCormack: Yeah, I'm better at producing content! If people want to get ahold of you, Juthica, how do they reach you? Who do you want to hear from? Who don't you want to hear from?

Juthica Chou: Well you know what, as of earlier this year, I'm on Twitter now, so people can reach out to me. My handle is my first name, @juthica and really anyone! I just like meeting folks, talking to them about what they're doing, what we're doing.

Peter McCormack: You'll get the crazies now though, because you've said it.

Juthica Chou: Yeah, but I haven't gotten that many crazies yet. So I'm very optimistic on the Twitter thing!

Peter McCormack: I should show you my DMs, some of them are crazy! All right, well listen, thank you for having me here. This is great and I can't wait to get this out!

Juthica Chou: Great, thank you!