Jean-Marie Mognetti on regulatory clarity and CoinShares’ vision

The London-based digital asset investment and trading firm returned to profitability in the third quarter after a disappointing second quarter that was, well, disappointing for many and the fault of few: Terra’s UST stablecoin and its governance token LUNA collapsed, erasing billions of dollars in value throughout the sector.

By comparison, losing about $21 million doesn’t seem that bad. Still, it resulted in CoinShares’ only negative quarter since the company went public. Even before Terra blew up, CEO Jean-Marie Mognetti said he counted himself among the skeptics. Investors were promised 20% returns. How was that possible?

“You know, I was scratching my head in January, February of last year, talking with my trading team like, ‘What are we doing? What if there’s something we’re missing?’” Mognetti said in a recent interview at Fortune‘s New York office. “We keep seeing this extraordinary return promised to us, and, you know, they have to make some margin, so that means the return they’re making is much higher?”

Why couldn’t CoinShares—or a similar firm packed with smart, experienced traders and researchers—find that alpha itself?

“We didn’t really seem to be finding a way to deploy our capital to achieve this kind of high, high number. Are we doing something wrong?” Mognetti continued. “And then you realize, well, actually, the number of real players delivering real returns weren’t that many.”

‘Cleaning up the industry’

With the help of internet sleuths, including FatManTerra, what actually happened at Terra was exposed soon enough, leading authorities to pursue its founder, Do Kwon, who’s now drowning in legal issues.

Mognetti said he’s never met Kwon and couldn’t say much about him as a person, but Terra’s failure, however devastating, should benefit crypto in the long run.

“It serves a massive purpose in cleaning up the industry,” Mognetti told Fortune. It’s not unlike the lasting effects of a widespread forest fire. “Ultimately, the forest grows back strong, absolutely.”

That hard reset will allow CoinShares and its peers, as well as newer entrants to crypto, to “start building stronger and stronger things,” he added.

Governments also could lend a hand with that. U.S. voters want leaders who understand crypto, those in charge of making the rules for crypto have openly admitted they need better ones, and just last week the head of the Commodity Futures Trading Commission said of an alleged turf war over crypto enforcement with the Securities and Exchange Commission: “It’s pretty cynical to suggest two agencies can’t figure it out and work together.” But they still haven’t.

There’s a lot less debate these days over whether the industry needs clear guidelines. But there is debate over how to prioritize such measures.

“I think regulatory clarity is critical for anyone who wants to be able to innovate,” Mognetti said. “But there are many, many other issues right now in the world. What are the top priorities for government? Right now in the U.S., probably crypto is not on the top of that list.” Similarly, in the U.K., where CoinShares still operates with more than $2 billion in assets under management, any plans of turning London into the next great global crypto hub were stalled as the country stumbled into selecting its third prime minister in nearly as many months.

Vanilla or strawberry?

So what’s next for CoinShares? Mognetti was a bit cagey on the question of a U.S. expansion, although he did mention how a lack of federal policy standards could lead to state-by-state regulatory battles reminiscent of the nation-by-nation regulatory battles he’s seen in Europe or Asia. Will President Joe Biden’s executive order on crypto end up being a “watershed” moment or stifle innovation? Who can say.

In the meantime, those in the space will continue to innovate. Crypto financial instruments aren’t “biscuits or protein shakes, where they can do a focus group and say, ‘Okay, do you prefer the vanilla or the strawberry?’” Mognetti continued. “When it comes to crypto in general, people don’t really know what they want yet.”

The trick, he added, will be for CoinShares to build a few products that help propel the company through the next market cycle, when Crypto Winter finally, finally ends. But he doesn’t know exactly what those are yet. And he’s not going to speculate.

“If Apple is talking to you about a new car they will launch, Tim Cook will talk to you about it six months before he knows it’s coming, and it’s ready to go,” Mognetti said. “If Elon Musk is talking to you about a new car, he’ll talk to you before he’s even started drawing it. It’s not an arrogant approach, don’t get me wrong, but we’re much closer to an Apple model, where we do what we say, and we say what we do.”

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