Steve Coughran: Hey everyone. Before I start the show today, I want to tell you about an amazing resource that can really help your business and your leadership capabilities, regardless of where you're at in your career. The website is called strategic financial leadership.com. In here, you can get access to free articles, past podcast, episodes, courses, economic indicators, and tools like the cost of capital calculator, which sounds pretty nerdy, but also cool.
Right? There are also membership options for you to get exclusive access to other resources that will help you to accelerate your career and drive better outcomes for your organization. Go to strategic financial leadership.com and enter the discount code free month to get your first month membership covered by us.
Max Nurov: Just you should come across. Let's say JP Morgan is applying blockchain technology to build their own digital currency. That actually really drives my interests to, to continue to work in this industry. And for me, innovation is what's really important
Steve Coughran: From Coltivar, it’s the Strategic Financial Leadership podcast. A show about CFOs, entrepreneurs, and top business executives, and their inspiring stories from inside the world of corporate strategy and finance.
I'm Steve Coughran, the founder of Coltivar, and on today's show, I’ll be talking with Max Nurov about his journey from Russia to the United States and the future of digital currency.
As talk about digital currency continues to make its way into headlines, many investors are debating the viability, feasibility, and longevity of this new form of money. Bitcoin, one of the most popular cryptocurrencies, was started in January 2009 and has seen tremendous growth in usership combined with volatility in its value. As a speculative investment, with the potential to replace currency as we know it, individuals need to carefully navigate this new environment from both a finance and legal perspective.
That’s why I’m excited for my conversation today with Max Nurov, the CEO and founder of Digital Finance, LLC and an expert in the digital asset space. Maxim has over 15 years of diverse experience in banking & finance. He manages Digital Finance, a Washington, D.C. financial company that specializes exclusively in the digital assets market. In 2017-2019, Maxim managed Black Square Capital, a hedge fund that invested exclusively in the blockchain space. Earlier in his career, Maxim worked as a General Counsel in major European banks.
Max earned an MBA degree at Duke University. He also holds JD degree and Series 65 NASAA securities license. Max was featured in Forbes, CNN Money, MarketWatch, HedgeWeek, and other mainstream financial media as an expert in the digital assets space. In 2020, Max founded DRC, a blockchain project designed to provide a hedge against inflation for the underbanked population.
So let me ask you this, Max, you started your education by getting a lot degree. Is law something that you wanted to pursue from the start?
Max Nurov: I would say that legal space was always the interesting I wanted to be part of. I received my law degree in Russia and tutorial actually very valuable experience. So I graduated from the law school and started working as a banking lawyer, and I worked over 10 years.
And the general counsel for international banks in Moscow, Russia, I worked for large European banks, such associated in Europe. This experience will be very valuable because I have very clear and deep understanding of how the banking industry works and what actually are drawbacks and inefficiencies in this industry as well.
Steve Coughran: Interesting. So what was it like growing up in Russia when you were a child? Was it a good experience living there? Did it, what did it teach you living in this different country?
Max Nurov: Yeah, it was a very specific experience. I lived with my family in the middle part of Russia. It's close to a Euro mountains.
In this city called UFA, it's two hours flight from Moscow. It's spirited, large city of over 1 million population. I wouldn't say that I had any difficulties or issues while living in Russia. They provided pretty much a solid education and legal knowledge based on the Russian legal system. Of course, it's interesting that in the Russia they're out.
Basically two major cities, Moscow and St. Petersburg and Moscow is considered as a financial center of Russia. St. Petersburg is more like a cultural capital of the country. Pretty much all capable graduates and people who want to build their careers. The finance industry are trying to move to Moscow because there are more opportunities there.
That was actually my case. I moved to Moscow back in 2003 was lucky enough to. Secure legal counsel position in line with their muscular banks. I moved further in my career ledger. For me it was very interesting experience because I was lucky enough to work for different banks in Moscow. Many of them were international banks, such Societe Generale group for a less seven years of my career in Moscow.
I worked as general counsel managed legal teams of up to 20 lawyers. I believe I built a pretty, my successful career in Moscow as a banker lawyer, before I moved to the us. Is this something
that your parents encouraged you to do? Were they into law and finance, or how did you decide to pursue this area?
What's interesting that initially I had two options. I mean that, I was thinking about that after the rejection, from there in the rush, gender colleges, high schools and students study for 10 years in the high school. And after that, they can go to their university and usually they go to the new York's too, when they are 16 or 17 years old.
So I had two options. Actually. My basic English was pretty much good when I started at high school. And I was thinking about pursuing South Korea in the linguistic space. And there was an opportunity to study English in depth. Another option that was to pursue legal career, but for me, legal career was more attractive.
And that thing that I definitely had choice because there are many ways to move forward and to receive any education I would be interested in. But our legal industry was actually the one that I was more interested in. And that was, I would say an easy choice for me. So
Steve Coughran: What ended up bringing you to the United States? You're now in Washington, DC. What brought you out here? And how's that transition been?
Max Nurov: When I worked in banking industry, I was always interested in in business processes. I felt that I had a lack of knowledge of how financial decisions are made, how people are in business department, make decisions regarding marketing or developing a new financial products and services.
As a general counsel, I opened it, interacts with them and it was a member or the different committees in banks, wherever that's actually triggered my interest to pursue our business education. And I think that also important for me that my wife, she actually received a law degree from the same law school in Russia.
We started in the same law school, but she moved to the United States. 15 years ago, we met each other again in mosque. We were just friends. We met each other in Moscow. It was 2015 and year related to emeritus. And that was pretty much unexpected, but life-changing decision for me. So she lived in the United States.
She's a lawyer. She, she, she has for bar exam in Washington, DC and in New York, she, she worked in the compliance space and currently she's consultant for work bank. It's worth quite changing for me to have lots of trips to the United States, back to Moscow. And at some point it became obvious that I need to move to the assets.
The United says Bermondsey. Obviously it would be difficult for me. To build the Curry in the United States, having only Russian law degree, I was thinking about continuing my legal education here in the United States, but at the same time, as I said, that business area finance, that was the inner self was always interested in.
And again, towards it, wasn't a difficult decision for me. And just, I realized that business education. Was what I was actually looking for. And then I started looking for their business schools that could provide them most valuable education. That's how I ended up studying at Duke and really happy that I was enrolled in the Duke and their progress.
And because their knowledge, that attack proceeded there helps me a lot now.
Steve Coughran: And that's where we spend our time together. And that's where I first met you. And, you know, I, I knew that you always had this interest in finance and that's that as time has gone on, you know, it's evolved into this interest in digital assets and blockchain and cryptocurrencies.
So. How did you get into this area? Finance and what are you most passionate about in this space?
Max Nurov: It was not a quick transition because just for like new commerce and people who just trying to figure out what's blockchain industries, I would say that it could take like several months just to get understanding of how it works.
So when I graduated from Duke, I made a transition from legal to finance. I moved to Washington DC and established my own company, digital finance, which was almost 2016. Initially I registered my company as an investment advisor. I took an investment course in Duke and was really fascinated and interested in how investment industry rocks learn more about investment strategists in different asset classes.
And initially the focus of my investment advisor or more outdoor into past classes. I was always interested, not in traditional markets type stock in bombs, but an alternative asset class, such as cash funds, private equity, venture capital at the same time towards a startup company. So I registered this company on my own.
I didn't hire any legal consultants to do that. And I started to approach and potential clients. I did my business model and instructive for this company. Established different business partnerships with other players in the space. But later in 2017, I started being more interested in the digital suspect because it was more organic transition from just traditional alternatives to digital assets.
Because I think that investors and especially institutional investors, All his second non-correlated asset classes with a therapist to efficiently diversify the investment portfolios. Typically they invested in hedge funds to diversify the stock and bonds portfolios. But in a couple of years ago, hedge funds actually underperformed S and P 500 index.
It was probably the patient correlation, but not in terms of returns and overall portfolio efficiency. So I came across digital assets as an asset class. And started to learning more about that. And you needed to worse fascinated about the potential value proposition of this market. Currently, there are over 8,000 different digital assets available on the markets, but I think only a few of them are worth investing.
And Bitcoin was definitely the only one that has clear value proposition
Steve Coughran: Max so for the listeners who may be familiar with Bitcoin. You know, most people have heard of Bitcoin, but some, they may not be super familiar about how it actually works. Can you explain to me. In most simplistic terms as possible.
Like how does Bitcoin work? How do these cryptocurrencies actually hold value? And what's the value proposition that you're referring to?
Max Nurov: Good question. I'll try to explain that really simple. So what's Bitcoin. I think that you can get different descriptions definitions of the Bitcoin. My definition is that Bitcoin is a digital store of value and the disinflationary digital currency designed to facilitate financial transactions without a centralized intermediary and a government control.
Basically, Bitcoin is a digital asset. It doesn't have any physical monetary value like gold of the art currency. In reality, Bitcoin is just a record on the Bitcoin blockchain that confronted with gun ownership. And Bitcoin blockchain is a distributed ledger of timestamp transactions. What are unique risks between that make it attractive to investors?
First of all, I would say new asset class, it's completely new asset class and it's rarely. Investors can find a new S class. And I think that, especially as a class that has such strong value proposition speaking about its own unique characteristics, first of all, Bitcoin is decentralized and no one entity or person controls Bitcoin because they block a bit, conduction is globally distributed.
Second characteristic of Bitcoin is that it's is sense. Censorship resistant of governments can take over in central banks can change it. Nobody has control over between network it trustless, and nobody has to trust any anybody else in order the Bitcoin network to function. So unlike in traditional finance system, you rely on banks when you send money overseas.
In Bitcoin, you hold your Bitcoin in your wallet. You can send it to another person in any country in the world. You do not have to rely on any intermediaries and the most important feature or characteristic of Bitcoin as it is for me is its economic model has limited supply currently. It's it has disinflationary model, but in the future to be fully deflationary model.
It's quite has takes supply or 21 million Bitcoins. And as of today, around 18.5 million Bitcoins have already been reduced. That means that roughly 88% percent of the total supply was already issued to the market. Bitcoin supply decreases by half every four years. It's world's algorithmically pre-determined or in the Bitcoin code, and nobody can change it.
And finally comparing Bitcoin to the traditional financial system. The fast transaction settlement is. What makes Bitcoin a really unique you can send, it's going immediately to another person and it will cost you are much less than you would pay to banks. For example, just recently in October, this year, someone transferred Bitcoins worth, roughly $1.1 billion.
It was one transaction. Over $1 billion. And the transaction was settled in a couple of minutes. And the person who sent this amount of Bitcoin paid on the $3 and 58 cents as transaction fee. Wow. And that's why deal it's are very, it's the asset class in the nascent stage of its development. It's already 10 years on the market, but it definitely has.
Unique characteristics and features that make it attractive to investors.
Steve Coughran: So how did, I mean, how does that work? Let's just say today, I'm like, okay, max, I have $10,000 and I want to put it into a cryptocurrency like Bitcoin, how do I do that? And then how do I get my money out?
Max Nurov: Currently actually it's it's pretty much easier because there are several large regulated Bitcoin, not only Bitcoin, but digital asset exchange in the United States.
For example, Coinbase. The largest crypto exchange in the United States, they trade in a volume is over $1 billion every day. And they actually plan to go public. I think that the evaluation can be as high as $30 billion if they go public. So you can open a trading account. As an individual or as an institution, you will need to pass QIC process.
And I think that to check on that a couple of days, talk about the account and you will be able to immediately buy Bitcoin or any other digital assets. Using your own, either credit card or bank account, and not think that you can purchase Bitcoin even easier using, for example, PayPal, PayPal started offering these assets to reds and for the getting you in users all over the rules or any other two agent apps.
Where actually onboarding process is even quicker, easier comparing to crypto exchange. And if you want to sell Bitcoin, you you're doing pretty much the same. You go to your app or to the exchange and you just click one button sell, and then you receive, if you add currency to your.
Steve Coughran: Gotcha. So let me ask you this cryptocurrencies, they've been highly scrutinized over the years.
There's skeptics out there thinking that, Hey, this is just, you know, a fad and you know, it's going to come and go and people are going to lose a lot of money by investing in cryptocurrencies. How do you respond to such skeptics when it comes to this type of market?
Max Nurov: Yes. Let me answer to this question in more detail.
Because I think it's very important, especially for people from traditional or conservative financial companies, based on my experience, as I said I started being interested in each task than 17. In 2018, I established and managed a crypto hedge fund, like square capital interacted to as many potential investors in the United States.
Such as investment advisory firms, family offices that never had digital asset exposure. And I had lots of conversations with them explaining why actually are invested in digital space, could add value to the investment strategy speaking about Bitcoin. So I would say that I agree that it's highly, still highly speculative asset class.
I can tell you that there are lots of market manipulations. That's why SCC is too has not approved the difference between it yet. The market is not efficient, not super transparent, but at the same time, the market is growing. Year over year, we can see Bitcoin historical performance for the last 10 years.
The market is not crushing. Bitcoin is not going to zero. It's going actually is appreciating value, their average annual return for the, and for the last 10 years or so, roughly 300 or scent. You cannot say that it's a bubble or completely complete speculation when you see such a strong historical performance.
And now the thing that's more important is that kind of Bitcoin market cap is as of today's $426 billion, you say approximately a hundred million people are using Bitcoin all over the world. It's a lot. And the number of users are growing. Why is that what's the intrinsic value Bitcoin? I would say the Bitcoin value value is still based on the supply and demand based on the network effect.
And also it's called Lynda effect. Ninja effect says that the longer technology exists, the more valuable the trend is showing that the market is growing. The user base is growing and there, I just, I do not see, at least like in the midterm that Bitcoin market is crushing or going to. Two zero for sure.
And now I think that what mentioned is that you can see what big institutions are doing those institutions. They have smarter investment analytics, they understand all the potential risks and rewards of entering this industry and such here. I'll give you such a few examples. A few years ago on the hedge funds and family offices invested in this space because they historically have higher risk tolerance.
Comparing to traditional or conservative investors as of today we see that large even conservative investors in the United States already entered Bitcoin market. Just recently insurance company, mass new shell. There are just 100 new and old Bitcoin for their genuine investment account. Well, it w it was a huge English because it's definitely a conservative investor and mass Nutella between bet can encourage other companies to conservative investment profiles, such as insurance and pension funds tend to the market and not the big company micro strategy.
It's a publicly traded company. They invested $1.1 billion in Bitcoin, and it's not just crypto hedge funds. It's very well recognized and public traded company. The biggest digital asset investment company in those States. It's called gray scale trust data, fully regulated and licensed. Currently, they have 13 billion of assets under management, mostly in Bitcoin.
That means that I can go there. For example, fidelity fidelity investments. They created a separate entity. It was last year. It's called fidelity digital assets. And I think they have a team of like almost 200 people and they created this one Bitcoin custody solution. And they're the author in Bitcoin trading for the institutional client base.
It was actually a wise decision because I see there. Growing appetite from institutional investors for Bitcoin. Finally, regulations are important. So if EBIT one would be considered as a super speculative and risky investment, I think that it would be just prohibited from investing in the United States.
This year, the U S office of their control, the currents or TC office announced that us banks they'll be in trouble a lot in allowed to hold Bitcoin for their customers. Sec said that Bitcoin is not an investment not an investment contract. That means that sec restrictions for securities are not applicable.
So they between markets. So the combination combination of all these metrics and statistics, I think that's clearly explained that. The market, the market has grown. And just from there, I would say, I, I'm not saying that everyone should invest in Bitcoin. As I said, it's still speculative markets and it's definitely a risky investment as an investor.
You can take pragmatic approach. So basically you can just forget about this value proposition or a quick settlement, just decentralization or other things just changed the Bitcoin's historical performance for the last 10 years. And you can see how it can affect your investment portfolio with their portfolio diversification perspective.
So if you would just allocate. Let's say 5% of your investing portfolio to Bitcoin. Your overall portfolio performance would increase by 500 basis points. I'm saying about traditional global 60, 40 investment portfolio and 60% portfolio to stocks and 40% to box because the risk reward is to client and that you potentially can lose your investment.
But based on the historical performance and the potential to growth that you can receive are just a symmetric return. That's can positive effects or the risk adjusted to Johnson, her portfolio.
Steve Coughran: So newcomers that are interested in diversifying their portfolio and maybe adding a type of crypto to their accounts, they can get into it by starting pretty small.
At first, like you're saying, you know, maybe they allocate a small portion, like 5% in this type of strategy can help them get into the market, help them to remain diversified and also, you know, maybe participate in some of the upside here. Is that what you're saying?
Max Nurov: Yes, absolutely. I think that, first of all, as I said, if we talking about Bitcoin or any other assets, it's a risky investment.
Of course you cannot invest more than you are okay to lose. I actually created the Bitcoin. Robo divisor a service on the website of my company. It's completely free service. So anyone can check and calculate the optimal coin allocation based on the risk profile investment goals and their network. I would say that.
If you have low or medium risk tolerance, or if you have their short term investment goals, if you want to preserve your capital, just do not invest in Bitcoin. It's too risky. But if you are, let's say accredited investor, you have long term investment horizon, and you'll have high risk tolerance. You can definitely diversify your portfolio with Bitcoin.
I would say that you can allocate. As high as 20%, you go from 12 to Bitcoin. If you need all of these requirements at the same time. I mean, for, just for, for retail investor, I mean, it all depends on your network and investment goals, but I would say like one, 2%. Okay. I think that it sounds reasonable to me.
Steve Coughran: So let me ask you this. Max is the increase in demand and the growing interest in these cryptocurrencies, is this a result of a new, exciting asset class where people think, wait, I can get in early on, you know, there's a huge potential, huge upside. Or do you think the demand is coming from this. Mistrust among people in governments and banks and other institutions, or is it a combination of both those things, what what's creating this demand and this surge in cryptocurrencies?
Max Nurov: Yeah, that's a, that's a great question. Speaking about our current global macro environment. I think that actually what triggers Bitcoin, Bella appreciation currently Bitcoin is digital store of value. In it it's, it's not a digital currency because it's too volatile. But for me, it's a digital store of value that can hedge in inflationary reasons.
And, and denic cost substantial disruption of the global economy central banks across the globe cut policy rates, and they provide a normocytic, which the market in the us compensation rate is 1.2%. Federal funds, federal contracts, zero point 25, right? It was a 1.7 to 5% year ago, and be bold in, in, in this economic environment, people are used to look for assets that can hedge the inflation risks.
Historically that was gold or just Fiat's currency, actually gold appreciated in value this year, that was expected. Especially in the first two quarters of 2020 investors either withdrew the capital from the stock markets in the beginning of the year, switch to cash because cash is King during the economic recession at the same time depo and especially institutional investor, they started looking for another alternatives to preserve the capital.
During this economical unstable environment. And that's where actually Bitcoin developer position becomes really helpful because unlike Fiat currency to Bitcoin has these inflation economic model it's called digital gold. It has pretty much the same characteristics, but unlike gold, it has really determined on British peanuts supply and it's highly portable.
So it makes actually it's better than gold or in terms of its characteristics and yes, supply and demand actually. That's what drives our, any, any asset price on the market demands increasing supply is decreasing because. As I said between production rate decrease by half every four years. And the last time that between production awards are reduced back half towards may, 2020 this year, that means that starts in may.
2020 less Bitcoin become available on the market. At the same time, we see that there are large Bitcoin holders and they just, they do not sell the Bitcoin. They just hold. So they are kind of actually not much Bitcoin available in the markets. And that's why it's like a musical chairs. People who believe in its value proposition can invest now rely on notes.
It's her future value appreciation. And currently, especially during the pathogenic kind of a crisis. I think it's a smart decision and I think it's actually a good China for the Bitcoin investment.
Steve Coughran: That all makes sense. And that's great information. Let me switch gears here for a minute, cause I'm really curious. now here you are very smart, capable person. You're very ambitious. You come from Russia. To a whole new country, to the United States. You're married. You have two kids and you start a business here in the United States. What's that process been like? How has it being an entrepreneur here? Do you find it challenging, you know, coming from Russia with like language barriers or differences in law and all these other nuances in cultures, how has it running your own business here? And what's the whole process been like?
Max Nurov: It was a very interesting experience, fortunately I have very intrepreneur wise mindset. Even in Moscow, I worked for FinTech companies and well was open-minded interested in new technologists, all this wanted to build my own product or financial solution. So I graduated from Duke tax to my own businesses, and that's what their idea that came to my mind.
There a business in the financial industry actually was my first choice. That's what I did back in 2016. I think that my legal background helped me a lot because I established my company on my own. I registered with FINRA and later with sec, as an investment investor in my advisor, I was able to prepare all the legal documents, all the reporting and operational now.
So for any, anyone who is trying to build new business, In the U S and who just moved from another country. I think education is really important, especially a combination of financial background, some like knowledge of business processes, business strategy. It adds value a lot for me. It wasn't too difficult.
I would say the more important I think that is to find the unique niche. Where you can add value and to build something unique. That's, what's important still. Like whether it's legal or compliance, it's still like most technical things about it. It's important to see the big picture to be open-minded and to see what your customers would need.
If not working in the financial industry are what financial products could be in demand, not now, but maybe like in the next like five, 10 years. That's what I'm looking for. And that's actually was the reason I started being interested in blockchain space because blockchain can definitely disrupt many industries and.
I feel lucky to be in the vault in this space now because of huge potential of the, this industry growth in the future.
Steve Coughran: Well, let me ask you this. I mean, what are you most excited about? You're running your business. It's probably a ton of work to get it off the ground. There's probably good days, bad days, you know, there's, there's a lot of stress.
There's anxiety. There's also excitement. Like when you combine all this stuff and when you look into the future and where, you know, blockchain and cryptocurrencies and all these new digital asset classes are going, what gets you excited every day? And where do you see your future going here over the next decade?
Max Nurov: I would say it's really exciting to, to work in this industry because every morning then I read punish on media. I see. Suck in you or what's happening in the digital asset space either. It's the LAN IPO or the Coinbase. The deepest us crypto exchange or news that traditional or very conservative institutional investor allocates a substantial capital to each status its space, or just if you come across any news about how let's say JP Morgan is applying blockchain technology to build their own digital currency, that actually really drives my interest to, to continue to work in this industry.
And for me, innovation is what's really important. I worked in traditional banking space for, for 10 years. And the banking industry couldn't be considered boring or they're conservative, but basically what banks do they take deposits. They lend money. They do underwriting and offer some other financial services.
But when you say. See how this industry or any other financial markets can be disrupted by the new technology. That's what makes you really interested to be actively involved in this space? I think that that's really important. It's, it's very broad personal choice. I guess some people are just more traditional business models, but for me, 12 olds was FinTech and I kind of take on that one project.
It's a new project. It's called GRC. We are trying to build a new digital assets that can help underbanked population, especially in developing countries to get easy exposure to their well constructed basket or the store of value assets such as gold us dollar and probably Bitcoin. I communicate to return.
People who are doing this project every day and to have very thoughtful discussions. And when you, when you are creating new financial products and especially products that can help people at least to preserve the capital. Or to help them to catch the inflationary risks, especially in developing countries.
That's what makes me really, really interested in continuing working in this space.
Steve Coughran: Yeah, I agree. And I think there's tons of opportunity and you know, that's what I admire about you is your willingness to get out there and. Try new things and be a pioneer in a brand new space. I think that's very cool and very admirable about you.
So great job with what you're doing. I really appreciate the conversation today, max, because I think it's a topic and an area of interest for a lot of strategic financial leaders out there. And as for individuals that are looking to be more progressive in their thinking in the area of finance, because I think the whole industry is changing.
And I think these technologies are coming along that are absolutely going to disrupt. A lot of different players and institutions and the industry abroad. So thank you for sharing your knowledge today and your wisdom really appreciate it.
Max Nurov: Thank you, Steve. It was a pleasure speaking with you today.
Steve Coughran: Thank you so much for listening to the show. This week, you can subscribe where you get your podcast, and if you liked the show, it would mean a lot. If you left a review, you can write to us at contact@sflhub.io. Finally to stay up-to-date on the latest happenings. Be sure to follow us on Facebook, Instagram, Twitter, or LinkedIn by visiting us at strategic financial leadership.
I'm Steve Coughran, and this is Strategic Financial Leadership.