Devin Ryan, Director of Financial Technology Research at JMP Securities, joins Yahoo Finance Live to discuss the FTX-Binance deal failure and subsequent collapse of the cryptocurrency market, and next steps for investors.
– all right. Now, his FTX demise is putting pressure on crypto-related stocks as well. Both Coinbase and Robinhood, which offer cryptocurrencies on their platforms, have fallen in the last five days, with Robinhood’s share price down about 7% as you can see. Now, discussing the prospects for Bitcoin-related companies here is Devin Ryan, Director of Financial Technology Research at his JMP Securities company, Citizen. Welcome to the show. So how much pain is in store for the many people whose funds are behind on some of these platforms?
Devin Ryan: I think we need to distinguish between what’s happening in the broader industry and some of the strong players in this space. And there’s still a lot of uncertainty around where we’re going from here, where all the money is going, and things like the tangled web. I think it is rising.
It’s a shame because in our opinion there are many good players, be they crypto assets and their protocols or companies providing the infrastructure of the space. But you mentioned a couple: Coinbase and Robinhood . Coinbase is a US regulated public company. They have $5.6 billion in liquid assets. They hold customer assets 1:1.
Therefore, the bank run on FTX and possibly some of the other fraudulent activity is not, in our opinion, related to a company like Coinbase. they are affected by this. So I’m not denying it. This negatively affects recruitment. People may withdraw money from the platform. But they have a lot of liquidity. So from a long-term perspective, especially when I took investment banks through the financial crisis, I’m not too worried. Companies like Goldman Sachs and JP Morgan have taken market share and come back stronger.
But first you have to go to the other side. And we’re not there yet. Therefore, the uncertainty is very high. Robin Hood is a different situation. SBF, Sam Bankman-Fried, who owned more than his 7% stake in Robinhood. 55 million shares. There is pressure there simply because there is uncertainty about what will happen to their stock. Basically, in our opinion, they’re largely unaffected by what’s going on here.
– That’s interesting. And Devin, that really explains why the ratings you have on these stocks. $155 price target. You mentioned the impact this could potentially have on recruitment. I think it’s going to be a big risk when talking about impact on Coinbase. You don’t seem to agree. why is that?
Devin Ryan: yes. So I think we need to take a step back and talk about the actual reason this industry exists and whether or not we believe that blockchain technology and some of the crypto assets created are actually useful and will continue to evolve. And that’s our position here. Now, we can probably all agree that there has been a lot of excess in this industry over the last few years.
There are about 20,000 cryptocurrencies. I think for the record only a few percent of them actually have real utility and opportunity. But for this industry to thrive, that’s what it really needs, just a few percent. Therefore, in our opinion, blockchain technology is disruptive and will change many aspects of how we do business in the long run.
As such, Coinbase is its primary on-ramp and off-ramp. So, in my opinion, people will probably sell their crypto assets and move to the retail sidelines in the near future. Institutionally, Coinbase will probably consolidate their stock here very quickly. Because even if you’re not completely out of the industry, people still need custodians. And now, in our opinion, it is very clear that Coinbase is a safe and sound place.
But the long term is really about blockchain technology. And I’m happy to talk about some of them. But I’m very optimistic about the future of the industry.
– And Devin, we hear a lot of people saying, This is a real wake-up call to remind people why they started investing in something like decentralized finance in the first place. Even in traditional finance and crypto. But what do you think the industry will look like when all this is shaken?
Devin Ryan: yes. So that’s a great question. Again, we are in the middle of it right now. So I think things could get worse before they get better. However, it is clear that there is a need for greater transparency. One of the advantages of blockchain technology is the transparency it brings. But the current problem concerns traditional financial players.
These are companies. In the past, we’ve seen companies over-leverage, not be good risk managers, and in some cases cheat. This means more scrutiny and potentially more regulation of centralized players within the industry. But that doesn’t mean that what’s happening in decentralized parts of the industry is wrong.
But I think it’s getting people back into the serious part of the industry and, let’s be honest, getting rid of this kind of over-speculation that’s already come out of the market in the last year. But this further separates companies building real platforms with real use cases on top of the blockchain and people coming in and buying and selling without really knowing what they’re buying and selling. I think it’s just a distinction.
And I think we’re actually moving into a more fundamental market, probably longer term. But in the short term it will be confusing. You never know where the infection ends here.
– yes. And Devin, to that end, you clearly said you could get worse before you get better. I think the question everyone wants to know the answer to is how bad is it? What are your general thoughts on the possible downsides?
Devin Ryan: yes. Well, I would love to see other periods in history and other market crises. Again, I covered investment banking through the financial crisis. There are other examples of fraud. In our opinion, the magnitude and scale of this is far smaller than the contagion of any kind of financial crisis. There are billions of dollars in assets and potential losses. But it also spreads to so many people.
Contagion is where I think there is bankruptcy, then assets, and crypto assets that may need to be sold in the bankruptcy process. And when there is a market where everyone knows there are many sellers, buyers are usually waiting. So things could absolutely get worse, both from a bankruptcy perspective as there is contagion, but also from crypto assets under pressure to sell not buy.
However, in our opinion, this magnitude and scale is much smaller than other financial crises that are talking about the financial system as a whole with many folds of leverage. This is billions of dollars, a lot of money, but it’s not as widespread as other examples we’ve seen in the past.