Crypto wipeout could ‘trigger next phase of blockchain adoption’: Analyst
Owen Lau, CEO of Oppenheimer, joins Yahoo Finance Live to discuss Binance CEO Changpeng Zhao’s plans to create a recovery fund for the crypto industry after the collapse of FTX, how this will create opportunities for crypto exchanges, and the outlook for the crypto industry.
Video transcription
– Of course, it’s been a wild ride for crypto as the collapse of FTX unfolds and trickles into the broader cryptocurrency space. Amidst the chaos, the CEO of Binance today announced plans to launch an industry recovery fund – few details are available – to mitigate further overlapping negative effects of FTX. For more on what’s in store for crypto and especially for the publicly traded side of it, let’s bring in Oppenheimer CEO Owen Lau. Owen, it’s good to see you.
In particular, you focus on Coinbase. We previously talked about Silvergate, another publicly traded crypto player. And you called in a recent note what happened with FTX essentially the Lehman Brothers moment when it comes to cryptocurrencies. That being said, what will the eventual infection look like?
OWEN LAU: So first of all, thanks for having me. So yes, we posted a note last week on Coinbase. We reduced our price target for Coinbase because we look at this situation twofold – number one, the short-term effect, number one – number two, the long-term effect. The impact in the short term, we think, unfortunately, will reduce TAM, reduce the market size of the crypto space.
But in the longer term for Coinbase, we think this is a bigger platform opportunity for a more transparent platform that can take market share from situations like FTX and other opaque platforms. So that is our long-term task. But in the short term, we still see a certain challenge facing the industry due to the risk of infection.
– Owen, during your crypto winter we usually see a lot of investment in different projects, networks that are really trying to increase support. And then there is the investment bit that takes place. But rarely have we seen the kind of rash on a company basis and on a project or even coin basis that we have this crypto winter. What is it for customers, for individuals who want to do cryptocurrency? What is stopping them from running away from crypto right now this winter?
OWEN LAU: Yes, I do not disagree that some of the investor confidence, some of the customer confidence has been weakened. And that said, we remain optimistic about the long-term future of blockchain and digital assets, because I think it will actually trigger the next phase of blockchain adoption, which focuses more on utility. So we know we talk a lot about the first tool is trading and speculation. But there are actually a lot of other tools, use cases out there in the payments space, like the blockchain – like the Bitcoin Lightning Network, and also in the lending space.
So we have the fifth Oppenheimer Blockchain Summit on Thursday. We invited many companies that are actually using blockchain as a use case to reduce costs and drive faster efficiency. And it would, I hope it would regain the confidence of investors and also of regulators and also of customers.
– What specifically needs to happen to restore investor confidence? There are many retail investors who have been trading crypto on various apps for the past year and a half, two years. And now they are probably sitting on big losses.
OWEN LAU: Yes. So first of all I feel very bad for those people who lost money, for investors and also for customers. And I think the most important thing that we need to see is, just like what you just reported, Binance is creating a recovery fund. And hopefully these private market solutions can reduce the damage that FTX is doing. So that’s number one.
And number two, I think it really takes time for the industry to show more transparency. As far as the investors are concerned, this industry can be stable. And they can run a sustainable model.
And number three, going back to my earlier point, I’m hoping that as the industry can introduce more use cases to customers, hopefully that confidence can come back.
– And of those things, what specifically, what role does Coinbase have to play? What can it specifically say to investors?
OWEN LAU: So I think number one, Coinbase is a publicly traded company. Their finances are public. And the finances are audited by a Big Four firm.
Number two, we know based on this disclosure, Coinbase, that they do not pool customer funds with company funds. They also don’t mortgage custom assets to take risky bets. I think that’s the kind of transparency and disclosure the industry needs to make and needs to have.
I see some of the exchanges are talking about proof of reserve disclosure. I think it’s a first step, but I don’t think it’s enough. I think there should be more transparency, more disclosures that mimic a bit of Coinbase’s transparent and compliant model. I think it will help the industry move forward.
– One of the interesting points you made in your note is that Coinbase has seen a large increase in volume in the month of November so far. But you say a lot of it was probably driven by people getting out, right, people doing foreclosures and panic selling, as you say. What do you think will be the long-term tapering effect after that? What will the volume look like on Coinbase over the next few months?
OWEN LAU: So, just like what you said, just like what I said in my note, I would expect there to be a pickup and trading volume in November. But I expect that because people get out, they don’t want to re-engage. Some people get burned. Some people may not even trust the crypto industry anymore. They can leave permanently.
But based on my conversation with many industry participants, if you are in the crypto space, you still want to get involved. Very few of them actually want to leave permanently. There may be some.
But the effect, it’s more like people on the site right now, it can extend their duration to get into this industry. So that will put some pressure on crypto prices and also trading volume in the short term. So that’s my thesis on why we’re going to expect an increase in trading volume. But perhaps in the next few months the volume will decrease a little.
– The interesting thing about blockchain and cryptocurrency more generally is that we are trying to figure out who we can trust when it comes to the figureheads of this industry. If you look at technology more broadly, whether it’s cloud or whether it’s social media, we know these figureheads. And people can decide whether to trust them or the product. But who are these figures in crypto that still remain?
OWEN LAU: It’s a very fair question. After FTX, who can you trust? You can point me to Voyager being a public company. And you have the situation in Enron and Lehman Brothers and things like that. Can you still trust this public company?
What I will say is, yes, we have the bigger company, the figurehead right now in this other technology company. But if you look at the Internet industry 20 years ago, I mean, we didn’t have a very large company, a leader in that space. The crypto of Bitcoin is still a 10-year-old product, a 12-year-old product. And it’s fair to say that it’s still a fairly fragmented market. And people try to be the leader because of the network effect they can enjoy.
So I’m not– I would say that after this event, we will see the leader emerge. And in particular more regulated platforms and more transparent platforms will eventually emerge as leaders. But we will see over the next 6 or 12 months how these things play out.
– Yes, I was going to say how in the end. I guess we’ll see. Thanks so much. And really great to get your perspective on this very important topic for many people, Owen Lau of Oppenheimer.
