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Bitcoin and rest of crypto market are ‘in two very different buckets,’ analyst says

Lyn Alden Investment Strategy Founder Lyn Alden joins Yahoo Finance Live to assess the contagion effect FTX has had on the greater crypto market and the overall crypto outlook following SEC Chair Gary Gensler’s comments.

video transcript

GARY GENSLER: There’s about 10,000 of these crypto tokens, and then there is not just dozens but maybe hundreds of service providers– broker dealers, they might call themselves exchanges, they might call themselves other things. You might think of them as the casinos wherein the investing public is looking for a better future. And because most of these tokens are securities, that means that the storefronts, if you wish, or the casinos, need to come into compliance with our time-tested laws.

DAVE BRIGGS: That was SEC Chairman Gary Gensler discussing cryptocurrency with our Jen Schonberger– the collapse of FTX impacting digital currencies and exchanges around the world. So where are we headed here? Lyn Alden is the Lyn Alden Investment Strategy Founder. Nice to see you. So let’s talk about those comments there from Gensler– when he’s likening it, essentially, to casinos, what does that say about the environment and about trust in crypto?

LYN ALDEN: Well, I think what it generally shows is that a lot of these assets are securities, which essentially means that they raise capital and you’re relying on a group of others to try to develop that in a common enterprise, like an investment contract. And a lot of them have been launched but didn’t go through the normal securities process.

It’s somewhat understandable, because it’s a new field that technology makes it easier to launch these things. That’s kind of the whole point. And so there’s a conflict between the iteration of the industry and then bringing that in line with actual securities law. So right now, there’s an arbitrage. And then you can get away with more offshore. And so a lot of these things are just being built and being kind of put together in ways that would not be allowed, for mostly good reasons, in the traditional equity or traditional securities world.

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SEANA SMITH: Lyn, you’re invested in crypto– just your broad takeaway of what has played out over the last several weeks– the collapse of FTX and what this means for the future investment of crypto, with so many people, I think, arguably , staying on the sidelines right now.

LYN ALDEN: I think that’s understandable. I mean, the way I conceptualize it is I put Bitcoin and the rest of the crypto space in two very different buckets. And so Bitcoin’s been around for 13, 14 years, depending on where exactly you want to measure it from. Even according to SEC Chair Gensler, it’s not a security because it never raised capital. It doesn’t pass the Howey test. It’s, essentially, a digital commodity.

That’s one area. Then there are areas like stablecoins that are also, I think, providing a lot of utility. Obviously, they’re more like securities and more like bank-regulated products in many ways. And then, aside from there, you have this kind of rapidly iterating area– some interesting projects, some interesting technology, but for the most part, there’s a decoupling between the actual technology and the desire from the developers and the early investors to get fast liquidity– to basically put a token, to put a security-like asset on something that doesn’t necessarily need it or that could benefit from it but is trying to go through a process around the securities laws.

And so basically, investors don’t get any sort of disclosures, necessarily, and they don’t get a lot of the protections that they normally get, what they would find in equities, or bonds, or other capital markets. And so it’s understandable that large pools of capital would be very cautious, especially of that ex-Bitcoin crypto market. But of course, Bitcoin also gets lumped into it because it can be levered as part of this ecosystem. And it’s also, obviously, very narrative tied to this ecosystem.

DAVE BRIGGS: We just put up the price of Bitcoin– it’s hovering around $17,260– down, but only down about 6% in the last month when you would think it would have been devastated by this FTX collapse. Are you surprised?

LYN ALDEN: Not really. I mean, I think this whole debacle was somewhat surprising. I mean, for example, I wrote months ago about the Luna collapse before it happened. I was very concerned about it. And I was very concerned about the impact it would have on Bitcoin.

That played out. But, admittedly, the sheer size of what happened over the past month or so was surprising even to me. But it’s not that surprising that there’s some degree of stability. If you look at various on-chain indicators, for example, there’s been a huge burst in self-custody of Bitcoin.

So a lot of enthusiasts are using this as a buying opportunity. They’re using this as an opportunity to take it off exchanges, take it out of– if they’re still allowed to withdraw from some of these custodians or centralized platforms, and bring it under their own self-custody. There’s also a very strong dollar cost averaging mindset in the space.

And like I said before, there’s kind of, like, two very different ecosystems. For example, the Pacific Bitcoin Conference was happening during the whole meltdown a month ago of FTX and Alameda. And the enthusiasm there was pretty significant. They were actually using that as an example for why they’re in Bitcoin and not the broader space.

So there’s kind of two Venn diagrams here. And there is some degree of overlap, but they’re actually somewhat separate ecosystems, even though the price tends to be highly correlated over a sort of intermediate term.

SEANA SMITH: So, Lyn, let’s put Bitcoin on one side. When you take a look at maybe some of the other cryptocurrencies that you say are much more riskier in terms of investment wise– when you try to calculate the potential contagion here from FTX’s collapse, how bad– or I guess how wide do you see this potentially getting?

LYN ALDEN: I think that we have to keep an eye on Genesis that’s the obvious one that could still lead to further contagion. I think there’s also a couple more offshore entities that I’d be concerned about– ones that have their own token, ones that have done a lot of marketing. So I’d be concerned about those. My expectation is the worst part is probably behind the ecosystem now.

But I still think that Genesis and a couple of others are really worth watching to see if there’s any more fast liquidations. But even outside of that, I think if you grind sideways for a long period of time, if you go a year in a choppy market, a lot of these more euphoric things can be down a lot more than something like Bitcoin or something– utility like stablecoin market cap or something like that.

I think this is a chance for the industry to go back to basics and focus on solving real world problems, rather than speculation, right? So if you look around the world, there’s billions of people that have a savings problem and a payments problem. And that’s where some of these technologies, I think, originally were invented to solve.

But now people have kind of repurposed that for speculation, leveraging, offshore casinos, basically apps with no use case that have a token attached unnecessarily. I think that’s the stuff that there’s still a lot of malinvestment that has to kind of bleed out over a long period of time. And it might not happen with Bitcoin going to new lows. It can go sideways. It can chop along. It can go mildly upward while some of the investments can still bleed out over time.

SEANA SMITH: All right, Lyn Alden, always great to get your perspective. Thanks so much for joining us here on Yahoo Finance.

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