Uncertainty is disrupting the cryptocurrency market, and crypto businesses in the industry are in a state of flux. Digital currencies like bitcoin have made a comeback in the market Last weekbut the fears of a “crypto winterpersisted. Bitcoin, the most popular cryptocurrency in the world, has lost more than half of its value this year.
Overall, as of late 2021, market values of digital assets such as cryptocurrencies and non-fungible tokens have tumbled. Some big lenders like Celsius Network and Three Arrows Capital have filed for bankruptcy protection amid allegations of poor risk management, while some of the biggest players, like Coinbase, are fire Personal.
Despite market turmoil and falling values, some are optimistic about the future of crypto. William Cai, co-founder and managing partner of the financial services company Wilshire Phoenixwhich was founded in 2018, said the latest crash does not necessarily indicate the fall of the crypto.
“The biggest idea we have is that this time is different from previous so-called crypto winters,” Cai told “Marketplace Morning Report” host David Brancaccio. “I think one thing that crypto investors and all investors should consider is that the crypto market has received many signals from overall markets, economic conditions, and stocks.”
The following is an edited transcript of their conversation.
David Brancacio: Things go up, things go down. But what happened – what happened – to cryptocurrencies in the last eight months, would you say it has cracked the foundations?
William Cai: Absolutely not. It was interesting. The biggest idea we have is that this time is different from previous so-called crypto winters. I think one thing that crypto investors and all investors should consider is that the crypto market has received many signals from overall markets, economic conditions, and stocks.
Brancacio: So the general economy. Look, the worry about inflation, central bank interest rate hikes, money coming out of the stock market, do you think crypto is partly caught up in those currents?
Cai: Yeah, absolutely. If you look at the last six months, or even shorter, the price correlation between the crypto markets and the S&P 500, [or even] better, NASDAQ, was super high. I think if you anonymize the data, remove the ticker or bitcoin or any of the tech stocks, if you just combine the time series, it would be hard to tell if, if you can choose if it’s bitcoin or against some technology stocks. So what’s interesting about this is that even though we’re in crypto winter, we won’t come out of crypto winter unless overall economic activities improve or the market for stocks are only beginning to improve. It really takes signals from the general market, rather than – and we’ve had some pretty big events and bankruptcies and events in the crypto space, but that’s really not the case, you were saying, [been] shape the foundation. He showed a lot of resilience. And I think he’s waiting for the overall market to improve.
Brancacio: Ah, the power of metaphor, you call it “crypto winter” implying there will be a “crypto spring” and so I understand maybe it’s not crypto Armageddon, this is not what I hear.
Cai: Absolutely not. Absolutely not. I think alike of the so-called crypto winters past, the underlying foundation, development, technology and adoption [of crypto] continued. And yes, I think we at Wilshire are very optimistic about the future of crypto.
Brancacio: But it must be destabilizing. When you see companies like Celsius, this crypto lender, is now under bankruptcy protection or a stablecoin is shown to be unstable.
Cai: Absolutely. [For] each of these events, our point of view is: “Does it matter? Yes. But at the same time, they are not. And let me explain to you what we, what we think. It’s a new technology. And new technology sometimes fails, but better and newer technology will come to replace it. I actually want to mention, because you mentioned Celsius, we think that’s not so much what’s wrong with the crypto space per se. It’s a bit of a repeat of all, I would say, new asset classes and speculation. It comes from, you know, greed and a little lack of risk management. It is therefore a bit of a shake-up of those who are over-indebted. It’s too extensive. And I think that’s a good thing overall for the crypto space so that we get to a better base.
Brancacio: Definitely some of this was a fad, right? Yet bitcoin last November was $65,000 each, now it’s down, you know, when we’re talking $20,000. You know, it’s like a tulip in the 18th century? I mean, tulips are always useful, you can put them in your garden, but it’s not really an investment, or is it another kind of mania, do you think?
Cai: A few thoughts come to mind. So bitcoin itself, I would be worried if the whole crypto space was just bitcoin, right? But bitcoin has, a, it’s proven its resilience and its technology, but it’s also built the foundation of blockchain technology and it’s really expanded, so you have these ecosystem blockchains like Ethereum or Solana and people building decentralized financial apps and products on top of that. And that’s really where we think the very exciting growth in the crypto space is going to be heading. Regarding your type of example of asset crashes or bubbles, I think an interesting example that might be comparable to tulips in a way is NFTs.
Brancacio: Yeah, non-fungible tokens, a way to verify the authenticity of you know, say, a work of art, you can use this digital device basically.
Cai: I think NFT has definitely had a real buzz over the past few months and now along with the other assets, in terms of price, it’s definitely gone down in price and interest. But yeah, at the same time I think even in NFT is that non-fungible tokens, its representation of art, it’s not entirely worthless to me. It makes people happy. And it’s like art, it’s art, and for me, there’s value in such instruments, especially in terms of decentralized ownership blockchain and fractional ownership. It is good that there is also a consolidation and a deflation of the bubble. But I think it’s NFTs, just like other assets, they’re here to stay.
Brancacio: You know, I hear from you that crypto could still play a role in a portfolio held by a sophisticated investor, an institutional investor. But you know, it has to happen to you, it happens to me, I mean, nieces and nephews say, you know, should I put it all in crypto? And you know, it’s one thing if a person worth $100 million invests 2% in crypto, knocks you out, but when a newbie invests 5 or 10,000, that’s half of everything they own . I mean, that’s another story.
Cai: No, you are absolutely right. There is risk in crypto investments, but I think you sort of alluded to it, it’s about understanding risk, and more importantly sizing, knowing how crypto or any risky investment, how does it fit into your portfolio, that you’re comfortable with risk? It certainly shouldn’t be, I think for 99% of investors, shouldn’t be 50% or more of your overall investment portfolio. And I think what should help and I think one thing while we’re working with regulators is a strong and protective regulatory framework that encompasses crypto assets that will kind of help educate investors and provide a level of protection in terms, for example, like investor education and what they actually invest in their investment portfolio.
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