Co-founders David Siemer and Les Borsai want to be the “Goldman private wealth of crypto” and share the industry’s concern with how the SEC is regulating through enforcement

An inescapable conclusion from the recent implosion of FTX is that no one in crypto can be trusted. But that’s the whole point of crypto – you don’t need to trust anyone.

It feels a bit like a snake swallowing its tail but the breakthrough of blockchain technology is that for the first time strangers can transact knowing the network protocol will keep the deal honest. Problems arise when centralized characters like Sam Bankman-Fried insert themselves into this dynamic, people come to trust them and then $10 billion is gone overnight.

The sudden demise of FTX rocked the crypto world but hasn’t made much of a dent in the broader economy or financial markets. One thing it will certainly do is intensify the already steady glare of regulators on the digital asset space. It should also generate more investor interest in firms that have gone to the trouble and expense of registering with state and federal regulators.

Wave Financial is one such firm, which aspires to be, in co-founder Dave Siemer’s telling, the “Goldman private wealth of crypto.”

In a sign of this crazy bear market, when I first began speaking to Siemer and his partner Les Borsai for this story we were using the example of Three Arrows Capital as the latest centralized failure horror show. Then FTX went and puked all over the market and here we are.

I followed up with Borsai in an email to get his reaction.

“The story of FTX, at its core, is about someone who made some egregious business-level mistakes and then compounded those mistakes by committing what appear to be acts of fraud,” Borsai wrote in the email. Wave Financial is a registered investment advisor under the U.S. Securities and Exchange Commission, one of a handful of crypto firms like Arca that have sought regulatory approval to run their business. 

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“We believe the SEC will now get involved, as they should,” Borsai said in his email “It is their job to protect the public and FTX is an example of how unchecked risk in a fast-growing industry can hurt a lot of people. Until there are cohesive/comprehensive rules for these types of platforms to follow, I would caution any investor to take extra care in putting their assets onto any of these platforms and to be aware that they're not held to the same standards as other types of traditional regulated exchanges.”

Prior to starting Wave Financial, Dave Siemer had created an investment bank, Siemer and Associates, where he had to register with regulators on four continents. “We learned a lot and became very smart on regulation,” he said to me recently. “There was never a thought in our mind of doing it a kind-of Wild West way” with Wave Financial, he said. "If you look at the last company that launched [it] was BlockFi that said, ‘we know what the regulations are and we’re not going to do it,’ and it worked out for them until it didn’t.”

Siemer is one of those folks you meet in crypto from time to time who had their hands on immense wealth in the early days of Bitcoin but just didn’t know it.

“A buddy sold me a bunch of Bitcoin for like 25 cents each,” Siemer said. He said he sold most of it by the time it hit $150. “Back in the early days I remember chatting with my buddies and being like, ‘man these things [Bitcoin] could be worth $10 someday.’”  

While continuing to work in traditional finance, Siemer began accumulating the new alt coins that were being created. He brought his friend Borsai into the crypto world as well. Wave Financial came out of a need to have some form of management for the hundreds of coins the pair now owned between them.

“The origin story really was to solve our own problems,” Siemer said. “Managing them become the bane of my existence.” Wave Financial only accepts accredited investors as clients, who tend to be crypto-native, meaning the bulk of their wealth comes from crypto. These are not people who want help buying Bitcoin, they are looking for complex trades and strategies, Siemer said.

Read more: Is a $60 Billion Loss Enough to Boost Activity on Regulated Web3 Projects?

“We wanted something that was more like a Goldman private wealth of crypto which is what we’ve always aspired to become,” he said.

Over its entire asset base last year, Wave Financial generated about 18 percent yield for their clients, Siemer said. That doesn’t account for price appreciation. They use derivatives and defi strategies to get those returns as well as staking strategies, which offer lower yields, Siemer said.

After selling Siemer and Associates in mid-2016, he went full time into crypto. Ethereum was his light bulb moment. “Smart contracts are really what woke me up,” he said. “It took me a long time to get over being a Bitcoin maximalist,” Siemer said. “That was what got me really excited, seeing how we could disintermediate traditional markets.”

Adhering to securities laws and other regulations has only become more important to Wave Financial customers after the implosion of hedge fund Three Arrows Capital and now FTX. Wave Financial bid to take over Voyager, the crypto lender that went bust, but lost out to FTX. It’s still unclear how that will be resolved now that FTX is no more.

And while Wave Financial is playing by the rules set by the SEC that doesn’t mean Siemer and Borsai are on board with everything the agency is doing in crypto.

“It’s really unfortunate, we do have some offshore offices and we are shifting more of our functions offshore just because of the utter lack of clarity but also bad forewarnings we’re hearing from everyone,” Siemer said. “It’s not unexpected. Everyone knows what happened with Celsius and Voyager and 3AC and so every jurisdiction in the world is cracking down. It’s not just the U.S. that is putting a lot of restrictions on crypto but also putting all these warnings out there. Every regulatory body on the planet is discussing what they’re going to do with stablecoin regulations first and then a lot of other regulations.”

Read more: U.S. Securities Regulator Tops Blockchain Association Members’ List of Concerns

The people making the rules often don’t know how crypto works, Borsai said. “My biggest fear with all this SEC stuff is, Dave and I have been to lots of things where we’re listening to politicians talk about the space and they’re behind,” he said. “They don’t understand enough about it, and I just don’t understand the way we have to be dependent upon people to help regulate but they don’t understand a damn thing.”

The risk of being put out of business is remote but something they are keeping an eye on, Siemer said. “We want to build this into a great asset management company, and there are things the SEC could do to make that impossible,” he said. “There’s a possibility that the regulation that may come down would make our business impossible.” For example, if the SEC said everything from Ethereum to smaller coins are securities that can only be traded on registered exchanges “our ability to do defi is gone,” Siemer said.

He says that’s the worst-case scenario and doesn’t believe the SEC and its Chairman Gary Gensler will go that far. “But if Gensler had his druthers, he would regulate Coinbase out of existence,” Siemer said. They are preparing in case it happens but aren’t yet taking any action.

“We’re not leaving the country any time soon, just to be clear,” Borsai said. The lack of clarity is also preventing them from doing trades in the market.

“There’s a lot of opportunities we see that we can’t do because we can’t figure out if it’ll be compliant,” Siemer said.

So how does the current bear market look to two professional crypto money managers? Borsai is sanguine that the economics of the metaverse should help drive the industry forward. “I’m optimistic based on the innovations I’m seeing,” he said.

The time horizon is important, according to Siemer, who has a negative view on the next 6 months but sees brighter possibilities on the long-term horizon.

“The whole global economy doesn’t seem too awesome right now,” Siemer said. In the six-to-12-month time horizon “there’s probably a little more downside risk than upside potential. Things are a little shaky,” he said.

Whatever the SEC or Justice Department end up doing about FTX, Borsai said the value of what crypto allows is undiminished.

“Despite the recent events, we still firmly believe that the opportunities in the emerging digital economy are massive. FTX was likely built with that same guiding principle in mind. It is just a shame that the poster boy for altruism has done so much damage to an industry with so much promise,” he said in his email to me. “Sam is intelligent and achieved a great amount in a short period of time, but he is responsible for this mess, not a lack of SEC oversight and not the crypto industry at large.”