We’re continuing our Advisor Spotlight interview series, created to help financial professionals build a community of transparency and communication around the emerging digital asset market. Our new guest is Mark Phillips, Principal at Harvested Financial.
Mark was kind enough to join this interview from overseas, and via google meet in a sun-drenched room in France, he told me about his adventurous career. Mark started off in journalism before discovering his deep interest in trading and markets. This led him to a career at an equity options market making firm, occupying roles in trading, development, and management before deciding to start his own firm in 2019. Harvested Financial is focused on the democratization of derivatives—opportunities for everyone. Taking all of this into account, it’s no surprise that Mark found his way to crypto, which he started dabbling in 2017. These days he’s focused on DeFi and regulated solutions for digital asset trading in the United States (that’s how he found us!).
Here’s our Q&A on digital assets with Mark:
1. Why did you choose to pursue digital assets for your clients?
Mark: Digital assets are one of the most exciting developments in finance in the last several decades. They offer entirely different vectors of productization and customization, but also enable new ways to unlock value from existing asset classes. We’re watching a Cambrian explosion in a brand new domain, and I want to be able to understand how it’s built from the ground up.
The first thing everyone thinks about is “where” crypto is going price-wise. That’s, of course, an important question for an allocator. But as someone who will also be investing over the coming decades, I want to understand “how” it’s getting there and start to help clients get comfortable with its projected evolution.
2. How long have you been engaging the world of crypto?
MP: I’ve been investing both personally and professionally in crypto since mid-2017. Bitcoin was generating a lot of buzz in the trading world, and I began to get interested in the technology. At that time, my day job was finding opportunities for an options market-making firm, so most of what I was focused on was if and how derivatives would be listed on BTC.
Both the CME and the CBOE were in a race to get a product listed, and each started with futures contracts. The futures were trading at a premium to spot because it was an easy way to get exposure without having to hold actual coins. I ran some test trades arbitraging the delivery, but it was outside our core competence, and thin markets meant it wasn’t worth the time to trade actively.
When spot prices crashed shortly after, like most of the TradFi participants, I shelved hope of seeing the market structure develop any time soon. As activity picked up again in the summer of 2020, I had recently started my own advisory firm and began to consider how this might fit into my projects.
3. What’s your favorite thing about this new asset class?
MP: My favorite thing about crypto is how fast the experimentation takes place. That means white-hot burnouts like Terra/LUNA, but it also begets rapid innovation and market structure iteration. Being an options trader at heart, watching the various different protocols in DeFi work through product-market fit has been fascinating. What sounds good in a white paper isn’t always what the customer actually wants or where the professionals are willing to provide liquidity.
Price changes are just about the only rule change that’s effective on filing in traditional markets, so any time an exchange wants to tweak market models or experiment with a new mechanism, there is a lengthy comment period with entrenched interests battling it out. A new smart contract, on the other hand, can be uploaded within hours.
4. What are your thoughts about the emerging world of asset tokenization?
MP: Bringing real-world assets onto the blockchain is an obvious bridge for broader market participants to get comfortable with digital assets. There are players that will need chains with walled gardens that have legacy KYC mechanisms, and even if it’s not perfectly crypto-native, that’s still a very interesting use case for the technology.
The tradability of digital assets is one of their greatest features, and as assets are tokenized, it will open up significant opportunities for liquidity across products and investments that previously couldn’t exist.
If the hurdle for an investor to engage with the blockchain is a hardware wallet and a website with pancake anime, you’re going to deter a lot of people at face value. If part of your investment at one of the world’s largest private equity firms comes with tradeable tokens on an Avalanche subnet, that’s a much friendlier introduction.
5. How are your clients talking to you about the market, and how have you talked with them about recent market movements?
MP: There’s always a market movement to talk about with crypto. For many of my clients and crypto investors in general, the volatility is a feature, not a bug. They came to this asset class expecting and relishing the big swings. Others that are newer to crypto tend to be a bit more spooked by price jumps or news events, and there I try to bring it back to the underlying thesis for the investment. We start with very small allocations, so there’s relatively little overall portfolio risk, and center on whether we still believe in the medium and long-term disruptive potential.
6. What words of advice would you offer to advisors just beginning to offer digital assets to their clients?
MP: Baby steps. If you come from the traditional world of finance, you take for granted how developed our capital markets have become and how good regulation takes a lot of worries off your plate. Even if you expect the wild price movements and thinner trading, regulatory uncertainty and the unique security risks of bearer assets are new to most people.
The same goes for allocations. Even if one percent of a portfolio sounds teeny, if a client is used to a standard mix of stocks and bonds, with crypto they’re going to have some statement sticker shock.
It’s been important to work with clients or recommend digital assets to clients that are interested in the underlying technology. Having an understanding of what problems crypto seeks to solve and why it’s interesting makes it a lot easier to stomach the price movements.
One of the topics I blog regularly about (thetill.substack.com) is innovations in digital assets, to get my clients and potential clients familiar with the opportunities. Someone who follows the markets is much more likely to have the appropriate risk appetite.
7. What are you most excited about for the future of blockchain?
MP: I’m looking forward to greater integrations between traditional and decentralized markets. Once you’re used to moving across bridges and hopping between protocols on different chains, having to send a wire transfer feels ancient. On the other hand, I’ve never been rug pulled by a chartered banking institution.
DeFi is still in its infancy, creating fictional magic internet money with double-digit interest, but traditional payments infrastructure is lacking. It’s not just improving existing infrastructure, but unlocking compelling new use cases like the potential to get instant liquidity on a tokenized private placement. I think both sides have a lot to learn from each other, and with the number of crossovers I’ve seen just from my own rolodex, there’s more and more reaching across the aisle every day.
Stay tuned for more advisor interviews in the coming weeks. Would you or someone you know like to be featured in our Advisor Spotlight Series? You can submit for a chance to tell us your story.
Disclaimer: This is not investment advice. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained constitutes a solicitation, recommendation, endorsement, or offer to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. All Content is information of a general nature and does not address the circumstances of any particular individual or entity. Opinions expressed are solely that of the interviewee and do not express the views or opinions of Blockforce Capital or Onramp Invest.