Likely ‘price memory’ if it drops below $14,000, says crypto CEO
Swan Bitcoin CEO Cory Klippsten joins Yahoo Finance Live to discuss the outlook for crypto markets, FTX’s presence on the exchange, and bitcoin pricing.
SEANA SMITH: Here is some breaking news in the crypto space. BlockFi CEO Zac Prince tweeted a few minutes ago that the company was not sold for $25 million. This responds to earlier reports that the struggling crypto lender is set to be bought by FTX CEO Sam Bankman-Fried. We want to talk a little more about what’s going on in this space.
We have Cory Klippsten. He is the CEO of Swan Bitcoin. And, Cory, first, your reaction to this news. Because we talk so much about the consolidation we’re seeing in this space after that big selloff we’ve seen in Bitcoin and a number of other coins. Sam Bankman-Fried is now reportedly eyeing another acquisition. What do you think?
CORY KLIPPSTEN: Yeah, it’s pretty fascinating to watch it all unfold. And by the way, thank you very much for inviting me. And yes, so obviously we’ve had large markets that’s been down pretty much all year. We know that crypto and Bitcoin are held by many larger players this cycle compared to previous cycles. So it’s not a kind of retail-oriented market anymore.
So basically the whole crypto industry was sort of risky, risk was off, and so those prices were reduced. And what he did when the tide started to recede was he exposed the extremely risky operations and investment and risk management practices of many players in the space. So not only the coins themselves went down in price but basically all that leverage that had been piled on by what are sort of called CFi lenders in particular a business model that really exploded over the past two or three years. with venture capital – and a kind of Uber and WeWork-style venture capital funding of their growth models, which turned out to be unprofitable and extremely risky if they were to continue to grow.
So that’s basically what we see. It’s kind of like a symptom at the start of the price decline, but then it’s become a massive accelerator over the last five or six weeks or so. And that goes for Celsius, BlockFi, Abra, Nexo, all those companies in that kind of category that do the CFi lending thing.
DAVE BRIGGS: That $25 million purchase price would have marked a 99% drop from their most recent valuation. As for Sam Bankman-Fried, who I’m going to go with SBF for this purpose– buying all these companies, lending money to others. We spoke to David Traynor earlier this week, he is the CEO of New Constructs. Here’s what he said about this recent phenomenon, and then I want your reaction. Listen.
DAVID TRAYNOR: FTX is trying to save itself by supporting these other zombie companies. I mean, it’s like AOL buying Moviefone.
DAVE BRIGGS: Now it was in reaction to reports that they might buy Robinhood, an idea they pushed back on. Nevertheless, there are always rumors that FTX might bail someone out. What do you think of that feeling over there?
CORY KLIPPSTEN: Yeah. I mean they make so much money being a counterparty and a market player with these companies speaking of FTX and frankly Alameda Research on the other side of the house – that’s the tenor market that actually trades on their own exchanges against their clients and participates in all these other exchanges doing arbitrage around the world. Even if you just take a look at Sam Bankman-Fried’s net worth by himself, it’s worth it for him to even spend, say, $1 billion or $2 of his own money for somehow so support those things, because it will actually be accretive to his net worth or it will lower his personal net worth less.
So it’s not some kind of altruism to try to support these things. It’s a very selfish move.
RACHELLE AKUFFO: And as we look at people who are basically tearing their hair out at this point who have money in exchanges like Celsius – we see these gels, they’re not able to transfer – what people need to understand at About what sort of recourse they can get from those crypto exchanges that freeze transfers or go bankrupt?
CORY KLIPPSTEN: Yeah. So I want to make a very clear distinction between a crypto exchange like a Coinbase, or a Kraken, or an FTX that actually matches orders and doesn’t re-mortgage your coins and loan them out without your knowledge – I shouldn’t say unbeknownst to you, people signed these contracts with CFi lenders – but this business model that broke out in the last two years was saying, hey, buy bitcoin or buy crypto with us, and then you can actually make money interest on it – basically, referring to people as depositors, but in the fine print underlined by depositors, we’re not talking about depositors.
You are in effect an unsecured creditor and we take care of your money and carry out market transactions. We can put it in DeFi protocols that are hacked and root it in the Luna UST ecosystem and narrowly escape with over half a billion dollars in user funds, like Celsius did a day before it collapsed. You know, so they can kind of do whatever they want.
And essentially, the warning I’ve been giving all these companies for years to their users is that you’re grossly underpaid for the risk. This lending model is essentially a business operation – as a financial partner you would be an LP in a hedge fund and you would get 80% of the profits. If you’re actually lending to a hedge fund, frankly, the only ones who can borrow at decent rates would be really well-established hedge funds with real traders, not the kind of experience people who run those CFi lenders for the most part.
And even then, you would have high-end mezzanine rates of 1% to 1.5% per month – 12% to 18%, something like that. So undercompensated for the risks they take with your coins. And I think you just see it all falling apart.
SEANA SMITH: Speaking of the collapse, the recent Terra collapse, the liquidity issues that we talked about – we’ve heard that call even from people in your industry saying we need to see crypto regulation in terms of when we talk about widespread adoption, that it really needs to happen in order to see wider adoption of this. From your point of view, what would you like to see from the regulatory side?
CORY KLIPPSTEN: Well, I think it’s important not to be a hypocrite. So if something is actually operating like a bank, like these CFi lenders have been, they should be regulated like banks. Or you should deregulate the banks. I don’t think you can have it both ways.
And similarly, taking the roughly 150 or so titles that are essentially unregistered with centralized teams trying to raise the price of their coin or whatever on Coinbase, those are, obviously – pass the four prongs of the Howey test and are titles by the laws we have on the books. So I think if you’re principled and not a hypocrite, you either have to advocate for the abolition of the SEC and the deregulation of ponzi schemes targeting your grandmother, and you have to be supportive of the penny stock operators sending from direct mail to retirement homes, or you have to regulate those penny stock cryptos on Coinbase the same way you do for securities.
DAVE BRIGGS: And, finally, the B on your left shoulder didn’t fall off the wall, thankfully. However, it has fallen in recent days. We are talking about a 6% drop today and 60% since the beginning of the year. What is a realistic bottom for you for Bitcoin?
CORY KLIPPSTEN: Yeah. I mean, I don’t know if it’s that important because it’s so fallen by this point, people are kind of used to it. I think people would like, even the most avid bitcoiners would start to have some sort of knot in their gut if you saw a bitcoin in the four digits, like under $10,000. But I think people who live here in the $17, $18, $19, $20 range are still going to buy if they see something like – I think the end of the week in 2017 was $13,800 , and it was also the highest in the kind of precursor run in June 2019. I think we hit $13,800 on June 26, 2019 if I remember correctly.
So it feels like there’s some price memory somewhere in the high $13s. And you know, I would probably start to feel it a little below that. But anything above $13,800, $14,000, something like that is a really good time to buy cheap Bitcoin.
RACHELLE AKUFFO: And, Cory, for retail investors who see some of these headlines on some of these exchanges and, as you mentioned, may not really differentiate between some that act more like a CD account, what is the safest place to keep your crypto right now?
CORY KLIPPSTEN: Yeah. So, I mean, I fully believe in bitcoin as a sovereign currency. At Swan.com, that’s all we teach, and we preach, and we educate people about custody. I think what you want to make sure, though, is that even if you’re using a trade, and you’re not taking self-guard, and you’re leaving it with a keeper, just make sure the setup is good.
And don’t sign anything that lets them go remortgage their coins – which means don’t let them go lend your coins. The risk-reward is not worth it. It never was. And I think that’s clearly laid bare today. So just make sure it’s in a separate user account that only you can withdraw the coins from and that you haven’t signed something that says they can go and trade them for you.
RACHELLE AKUFFO: Do your homework. Thanks a lot. Cory Klippsten here, CEO of Swan Bitcoin. Thanks.