Why Crypto’s Crash Could Be “Good for Coinbase”: Strategist
MoffettNathanson Partner Lisa Ellis joins Yahoo Finance Live to discuss Binance’s bailout on FTX, what it means for cryptocurrencies and stocks, and consolidation in the space.
SAM BANKMAN-FRIED: We think the most important thing is to support the industry and that is paramount. And we will do what it takes to achieve it. But yes. Ideally, other people would join us.
– This was FTX CEO and co-founder Sam Bankman-Fried earlier this year on the importance of crypto bailouts. But now the cryptocurrency exchange is considering being acquired by rival Binance after FTX saw a spike in withdrawals, causing a major liquidity crunch. Let’s come to our own David Hollerith here. David. Lisa. Lisa. I am sorry. Lisa. At Moffett Nathanson, Lisa Ellis. Happy to see you. My apologies on that one. So I know you cover Coinbase extensively. What does this mean for Coinbase?
LISA ELLIS: Well, it’s bare… I mean, look. The whole industry is currently going through a very big upheaval. And that kind of causes tremors across the industry. No doubt about it. But, ultimately, what this situation lays bare is that there is quite a significant difference between the kind of security and trust you can count on with regulated exchanges and crypto companies operating quite intensively in the regulated ecosystem compared to those operating in the unregulated or somewhat semi-regulated space, which FTX, and for that matter Binance, also do.
So even though this is painful and will cause a jolt and cause some sort of tremor and concern about the stability of the industry as a whole, it will probably mean a flight to quality which should be good for Coinbase and its more regulated. peers.
– Is it also a leak towards quality and the platform? And what platform would it be? Because I think of a Coinbase, I think of a Robinhood watching this megadeal unfold and trying to figure out what it means to them.
LISA ELLIS: Yeah. Well, I mean, one notable distinction, of course, is with someone like Coinbase and Robinhood, I mean, they’re publicly traded companies. They are regulated by the FCC. They need to have very clear and transparent information that investors go through every quarter to see what’s going on with the balance sheet, how it’s booked, for example. And then also because they’re regulated, they don’t participate in, for example, the derivatives market, the options markets in crypto. They don’t lend. They don’t lend.
They are therefore fully reserved. Huge difference here because you can’t really run the bank, so to speak, at someone like Coinbase because they’re 100% reserved. They could, if they needed to, cash out every deposit. So there may be technological aspects to the platform. But it’s really more about, I would say, the policies and procedures they follow that give stability and kind of security to the underlying consumer assets
– Lisa, in light of this development, a few months ago there was speculation that there might be a connection to Coinbase or Robinhood. Does this now have to happen given that you have an FTX and Binance joining forces?
LISA ELLIS: It’s a good question. I think we’re still in TBD mode in terms of – I mean it certainly seems like it’s only natural that when we’re in a crypto winter and trading volumes have dropped dramatically and these are business based on the scale that benefit significantly in their economy of scale – liquidity begets more liquidity, et cetera – that we will see consolidation. There are still something like 300 exchanges worldwide operating in crypto. And we should definitely see some significant consolidation at some point. But whether that comes in the form of actual mergers or takeovers as we see with Binance bailing out FTX versus just a volume migration to a small number of platforms and then others essentially shutting down, I would say that is to be determined.
– With the midterm elections here in the United States, you might have a change on the Financial Services Committee with the House. And it could also possibly have impacts on the crypto landscape, or at least the scrutiny, acceptance of blockchain and crypto-related technology. Do you foresee any corollary impact of the midterm elections on what the next few years look like for crypto?
LISA ELLIS: Yeah. Well, I mean, we, like I think many in the US crypto ecosystem, are hopeful. There is currently a bipartisan bill in the Senate that should at least start the process of establishing a regulatory framework for the industry, specifically allocating some of the major cryptos that are highly decentralized, i.e. like a bitcoin. , Ethereum, etc., specifically under the jurisdiction of the CFTC, and then go from there. And I think now that we’ve been through the election and they can kind of get back to an agenda, that’s arguably an area that’s an easy win for both sides to demonstrate bipartisan collaboration.
And so I think we and many in the industry have our fingers crossed that they move forward with this first stage of legislation to kind of pave the way for more changes and additions as we go along. time. The United States, frankly, is a bit behind. And we have, as a result, seen significant trading volumes moving offshore to other jurisdictions where regulatory frameworks are clearer for exchanges and the ecosystem as a whole.
– Lisa, if I learned anything from covering the Lehman Brothers and Bear Stearns crisis, it’s that when you have liquidity problems at large financial institutions, it takes a while for it to go away. In the shorter term, the selling we are seeing in various crypto tokens across the board, how long might this continue based on FTX issues? No pressure.
LISA ELLIS: I wish we knew that. I would like everyone to know that. Look, the immediate sell, right, that we see yesterday today, that’s going to tend to happen. People make decisions very quickly. Either they dump or they don’t, or they move or they don’t. What I think is very– so it should stabilize here pretty quickly. I think what’s uncertain, though, as always, as we saw in the spring with the Luna-Celsius and Three Arrows Capital situation, is that we don’t really know at this point what the potential repercussions are. , if there are other exchanges or other entities that have been exposed here.
This is part of the problem with these unregulated offshore exchanges. In fact, you don’t know where the risk is, where exactly who owns what assets. And so it will probably take at least a few weeks, as we saw in the spring, to kind of see the potential repercussions that there might be elsewhere in the industry.
– MoffettNathanson Partner Lisa Ellis, thank you so much for joining us on all things crypto this morning. Appreciate it.
LISA ELLIS: Thanks.