Q&A: CF Benchmarks CEO Says Institutions More Interested Than Ever in Crypto

CF Benchmarks has been fielding more calls from traditional financial institutions during the crypto winter than the crypto index provider received during the bull market. 

Some fifteen months ago, much of CF’s engagement with Wall Street stemmed from asset managers looking to license its bitcoin pricing product for upcoming hopeful spot bitcoin ETFs, CEO Sui Chung told Blockworks. 

A subsidiary of crypto exchange Kraken, CF is perhaps best known for its reference rates of bitcoin and ether, employed by derivatives marketplace CME Group to settle its digital asset futures contracts.

“Now it’s much more, ‘How do you guys think about this world?’” Chung said. “How do you categorize the work you do and what do you intend to do going forward? They’ve sort of done their homework.”

CF continues to focus on decentralized finance, DAOs (decentralized autonomous organizations) and Ethereum smart contracts as the Merge approaches, Chung said — three key areas for institutions of late.

The chief executive spoke to Blockworks about how the lingering crypto bear market has caused deep-pocketed institutions to change course — or not — and the company’s path forward from a macro perspective. 

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Blockworks: What sort of conversations has the company had with institutional investors recently?

Chung: Although it’s winter, we’re fielding ever more calls from traditional financial institutions who are either contemplating launching a product in the space or have actually decided that they are going to do something — and obviously want to talk about licensing our indices and understanding the methodologies.

Increasingly, we find the institutions who talk to us have a framework about how they think about it, and they want to know if we see eye to eye on that. So, that’s a change. 

With one particular firm — a very old asset manager with a trillion dollars-plus in AUM — we had some discussions about dapps [decentralized applications] that I must admit were on the periphery of my vision. 

Blockworks: What did you make of BlackRock’s recent partnership with Coinbase?

Chung: It’s obviously huge. Connecting those two pieces of plumbing for $40 trillion worth of assets is not trivial at all. However, I would temper that by saying it is still just plumbing. Are the [portfolio managers] and CIOs rushing to allocate? No, that’s not the case. But a very significant pain point has been taken away.

Really, what the BlackRock and Coinbase hookup means is that there are a bunch of asset managers out there who now no longer need to do all that vendor onboarding, hooking it up, which is not trivial. So, I would say the bigger potential impact is it’s not so much that more investors will allocate. It’s that more asset managers can spin up products more quickly.

Blockworks: How about BlackRock’s announced launch of a private bitcoin trust? 

Chung: Obviously, BlackRock’s private bitcoin trust is a watershed moment.

By definition, BlackRock talks to more institutions than anyone else, because it’s the biggest asset manager. So, BlackRock has clearly talked to enough institutions who showed very genuine interest to be launching this.

Blockworks: Average daily open interest across CME Group’s crypto products was a record last quarter. What do you make of those numbers?

Chung: I think they will keep growing, because you now have all the major banks and [futures commission merchants]…brokering those futures and clearing those futures — so, that’s a lot of capacity. It seems like every time capacity is added, it gets filled.

You have the ETFs, as well, that are a big anchor now for open interest…so, the ceiling is: I can’t see one right now.

The one thing it’s kind of analogous to…is when commodities entered the financial mainstream…You get to 2005, you need commodities exposure…and, all of a sudden, everyone had to scramble around and learn what lean hogs were, soybeans and Kansas wheat.

It’s a little bit like that…if you use that, and then look at the growth of trading volume and open interest of all those commodity contracts since they became financialized…BITO and USO are actually quite similar in the way they hit the market and went to $1 billion in a day. 

Blockworks: How long before we see a spot bitcoin ETF in the US?

Chung: The demand from investors for a spot bitcoin ETF is obviously there. That’s not a secret. Whether the SEC will not reject one…remains to be seen.

As the guy who’s been rejected the most times through the spot bitcoin ETF process, being the index provider to, I think eight rejections, it does seem that a lot needs to happen before this SEC will allow that.

Blockworks: What about an ether futures ETF? 

Chung: The [ether] futures on CME continue to be ever more liquid, and there’s ever more trading volume. As long as an issuer is confident enough that they can convince the SEC that they can create and redeem unlimited quantities…and that the ether futures market is liquid enough to accommodate that, it’s a matter of when the market meets that test, and that’s it.

Blockworks: What are you keeping an eye on as the crypto winter persists?

Chung: People use the term crypto industry…but we both know that there’s kind of no such thing. There’s just a bunch of companies doing what they’re trying to do. Some of them do it very well and have been doing it a long time and are very large and have processes, have controls — I’m talking about the Coinbases and Krakens.

And then you have other firms that don’t operate like that, some of which have already blown up spectacularly — the Celsiuses of this world. I don’t think it’s over for some of those less well-run and less prudently managed firms to halt withdrawals and become illiquid.

Obviously, that is going to hurt investors. It’s going to likely cause more volatility and obviously that’s not what we want to see, but it’s kind of necessary. 

This interview was edited for brevity and clarity.

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