Talking Crypto with Hehmeyer’s David Nuelle

As 3Points launched 10 years ago in the derivatives trading space, it was fitting that our first client was Hehmeyer — then known as HTG Capital Partners. Founded by Chris Hehmeyer, who is literally a Hall of Famer in the futures industry, the firm has been at the forefront of derivatives for decades. So it was noteworthy when Hehmeyer transitioned completely to cryptocurrencies earlier this year.

David Nuelle has been a managing director at Hehmeyer for over seven years, and he also joined the interim board for the Global Digital Asset & Cryptocurrency Association (Global DCA), a new industry self-regulatory association. We spoke with David recently about where cryptocurrency is at, why Hehmeyer made its transition to focus on it, and why now is such an important time for the industry. Read David’s thoughts, lightly edited for clarity, below.

Hi David, thank you for speaking with us. In your words, what went into the decision to reinvent Hehmeyer and focus on the crypto space?

It was the opportunity — when we looked at the opportunity set, we realized how large it was in digital assets. We’re at a very early stage of the shift to digital assets, and it’s going to be broadly appealing.

The growth potential is enormous. We did a lot of research on what the growth potential is — one measure that people have looked at is a projection by the World Economic Forum, which estimates that 10% of the world’s assets will be on blockchain by 2027. Based on my research, if the WEF is correct, that works out to a compounded monthly growth of digital assets of 4%. And it’s not going to be just bitcoin, but other tokens and things we haven’t even imagined yet. So the price of the assets will likely be moving higher, and this creates a multiplicative effect on the demand side.

After all of the boom and bust of the past few years, what makes now a particularly notable time for cryptocurrencies?

There’s an evolution of cryptocurrency — this is something where Global DCA will be impactful — from an unclassifiable asset into one that will be a true asset class. We’re in that transition period now. The U.S. Office of the Comptroller of the Currency (OCC) allowing banks to hold onto crypto is an informal greenlight for that. Foreign governments are making their own cryptocurrencies, you have Libra (which is under scrutiny, but my guess is Libra or something like it will evolve), and there’s demand from retailers and commercial actors and investors.

Throw on top of that the fact that with instability in the central banking world, there’s a need for a private currency, and bitcoin falls into that category. So it’s a little bit of a combination of bitcoin coming of age, and rails having been built for it.

How did you get introduced to Global DCA?

I went to one of their events last year to see former Chicago Mayor Rahm Emanuel speak, and was really impressed by what they were doing and how they were organizing. So I volunteered for one of the committees, and I met people who bring a lot of firepower and are really knowledgeable. I felt like the mandate they put on themselves — to embody self-regulation in the crypto space and develop in-line with global best practice for Self-Regulatory Organizations (SROs) — is different than other organizations. It’s hard for me to know exactly what others are doing, but most are operating as trade organizations and less as full blown attempts to evolve into an SRO. Right now, as we transition to cryptocurrencies becoming a true asset class, that’s a needed role. Someone has to promote good conduct in the markets, to give legitimacy and lend some credibility to the market at a needed time.

Why does the crypto industry need Global DCA?

The group is extremely well organized — they put together a code of conduct that is well thought out and based on the experience of other industries, while focusing on the idiosyncrasies of the crypto market. I think that’s really the number one thing, bringing a sense of regulatory authority to a market where there’s a perception that it isn’t there.

The group’s mandate is extremely aggressive. They’re trying to become global in nature, as inclusive as possible. They want members from as many different places and portions of the industry as possible, brought under one tent. That has not necessarily been the case with other groups, so I think this one has a great chance of succeeding.

Again, one of the things I’ve been impressed with is the people involved. I knew some already, and I’ve gotten to know others. There are some traditional capital markets people, a couple people from academia, thought-leaders in innovation, and people like myself who understand the market and how it works. There are some high level attorneys who understand the crypto market, and people from other SROs. So there’s a broad range of experiences.

What lessons should crypto learn from traditional capital markets? And, vice versa, what lessons can traditional capital markets learn from crypto?

A market thrives when it’s well-regulated and there’s fairness for all participants. The LIBOR/FX scandals of the ’90s and 2000s, for example, put FX in an unfavorable light and gave the industry a black eye. So the key for cryptocurrency is to establish a code of conduct and set of rules for the participants to avoid those same problems. If it operates in the shadows, it will never grow; if it operates in the sunshine, it will.

As for the second question: there’s a feeling from the crypto world that traditional capital markets failed to evolve. The infrastructure is cumbersome — it’s expensive now in so many ways to trade. That’s not necessarily true for small retail traders, but people who are building infrastructure around traditional capital markets, it’s a high bar to become a trader or market maker in those markets. And some of it is due to a failure to innovate. Financial markets can look at crypto markets and see the enormous amount of innovation happening all over — from payments, to new products, to how some new coins work, to how privacy is held on the blockchain. Traditional capital markets should look for that innovative spirit and maybe adopt some of these changes we’re seeing in crypto.

What are the biggest challenges facing the crypto space today?

The biggest challenge that the crypto industry will face is keeping up with growth of the demand side. We don’t really have a killer app yet — there are some looking promising, but once there is one and everyone wants it, I don’t know if crypto is well-equipped to keep up with that. In addition, many of the laws and regulations surrounding conventional markets need to be updated to address crypto.

What are three big industry changes you see in the upcoming years?

1. I think you’ll see retailers start to adopt crypto services and tokens for their businesses. We’ve already seen this to some extent with Bakkt’s relationship with Starbucks — ultimately retailers will adopt it, driving mass adoption.
2. I think there will be a number of innovations as it relates to ways you can transact crypto and crypto-related services. People will start to adopt smart contracts. They will proliferate, we will rely less on centralized authority and more on decentralized oracles in that space.
3. I think you will see conventional banks offering the ability to hold crypto and fiat in one account, and that will be a breakthrough.

Any final thoughts as we wrap up this interview?

I hope people realize how quickly this industry can move and how big the opportunity set is. Someone told me a few years ago that we weren’t in the first inning with cryptocurrency — we were in the first strike of the first inning. It feels like we’re in the second inning now. The changes that cryptocurrency can bring are enormous and the benefits will be huge for a lot of people in the world.