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Bitcoin: Likely some ‘price memory’ if it falls below $14,000, crypto CEO says

Swan Bitcoin CEO Cory Klippsten joins Yahoo Finance Live to discuss the outlook on the crypto markets, FTX's presence in the exchange place, and bitcoin's pricing.

Video transcript

SEANA SMITH: Here's some breaking news in the crypto space. BlockFi CEO Zac Prince tweeting just minutes ago that the firm is not being sold for $25 million. This is responding to earlier reports that the struggling crypto lender is close to being bought by FTX's CEO Sam Bankman-Fried. We want to talk a little bit 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 that we are seeing in this space after this massive sell-off that we've seen in Bitcoin and a number of the other coins. Sam Bankman-Fried now reportedly eyeing another acquisition. What do you think?

CORY KLIPPSTEN: Yeah, it's pretty fascinating to watch this all play out. And by the way, thank you so much for having me on. And yeah, so we had, obviously, broad markets pull back basically the entire year. We know that crypto and Bitcoin are cross-owned by a lot of larger players this cycle versus previous cycles. So it's not sort of just a retail-driven market anymore.

So you basically had the whole crypto industry being kind of risk-on, risk being turned off, and so those prices got pulled down. And what it did when the tide started to go out is it exposed the extremely risky operations and sort of investment and risk management practices of a lot of players in the space. So not only were the coins themselves dropping in price, but, essentially, all this leverage that had been piled on by what's been sort of referred to as the CFi lenders in particular, a business model that's really exploded in the last two or three years with venture capital-- and sort of Uber and WeWork style venture capital funding of their growth models, which turned out to be unprofitable and extremely risky if they were going to keep growing.

So that's essentially what we see. This is kind of like a symptom at first of the prices dropping, but then it's become a massive accelerant over the last five or six weeks or so. And this goes for Celsius, BlockFi, Abra, Nexo, all these companies in that kind of category of doing the CFi lending thing.

DAVE BRIGGS: That reported $25 million purchase price would have marked 99% down from their most recent valuation. In regard to Sam Bankman-Fried, who I'm going to go with SBF for this purpose-- buying up all these companies, lending money to others. We talked to David Traynor earlier this week, he's the CEO of New Constructs. Here's what he said about this recent phenomenon, and then I want to get your reaction. Listen.

DAVID TRAYNOR: FTX is trying to save themselves by propping up these other zombie businesses. I mean, this is like AOL buying Moviefone.

DAVE BRIGGS: Now, that was in reaction to reports they might buy Robinhood, a notion they've pushed back on. Nonetheless, it continues to be rumored about every couple of days that FTX might bail somebody out. What do you make of that sentiment there?

CORY KLIPPSTEN: Yeah. I mean, they make so much money being a counterparty and a market participant with these businesses, speaking of FTX, and, frankly, of Alameda Research, the other side of the house-- that's the market maker that actually trades on their own exchanges against their customers and participates in all these other exchanges doing arbitrage around the world. Even if you just take a look at, like, Sam Bankman-Fried's net worth on his own, it's worth it to him to spend even, say, $1 billion or $2 of his own money to sort of prop these things up, because it will be actually accretive to his net worth or it'll make his own personal net worth go down less.

So it isn't some sort of, like, altruism to try to prop these things up. It's a very selfish maneuver.

RACHELLE AKUFFO: And as we look at people who are, essentially, tearing their hair out at this point who have money in exchanges like Celsius-- we're seeing these freezes, they're not able to transfer-- what do people need to understand about any sort of recourse they can get from these crypto exchanges that are either freezing transfers or going 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, which actually matches orders and doesn't rehypothecate your coins and lend them out without your knowledge-- I shouldn't say without your knowledge, people have been signing these contracts with the CFi lenders-- but this business model that kind of erupted in the last couple of years was saying, hey, buy some Bitcoin or buy some crypto with us, and then you can actually make interest on that-- essentially, referring to people as depositors, but in the fine print pointing out by depositors, we don't mean depositors.

You're actually an unsecured creditor and we go out the back end with your money and conduct market operations. We can put it in DeFi protocols that get hacked and put it in anchor in the Luna UST ecosystem and narrowly escape with over half a billion dollars of user funds, like Celsius did a day before that collapsed. You know, so they could kind of do whatever they want.

And essentially, the warning that I've been giving for years on all of these businesses to their users is that you're being dramatically under-compensated for the risk. This model of lending to essentially a trading operation-- as an equity partner, you would be an LP in a hedge fund and you should get 80% of the profits. If you're actually lending to a hedge fund, frankly, the only ones that can borrow at decent rates would be really well-established hedge funds with real traders, not the kinds of backgrounds of the people that are running these CFi lenders for the most part.

And even then, you'd be looking at sort of, like, high end mezzanine rates of 1% to 1.5% per month-- 12% to 18%, something like that. So dramatically under-compensated for the risks that they're taking with your coins. And I think you're just seeing it all kind of collapse.

SEANA SMITH: Speaking of collapse, the recent collapse of Terra, the liquidity issues that we have been talking about-- we've heard this call even from people inside your industry saying that we need to see some regulation when it comes to crypto in terms of when we talk about mainstream adoption, that that really needs to happen in order to see wider adoption of this. From your perspective, what would you like to see from the regulation front?

CORY KLIPPSTEN: Well, I think it's important to just not be hypocritical. So if something is actually operating as a bank, like these CFi lenders have been, they should be regulated as banks. Or you should deregulate banks. I don't think you can have it both ways.

And similarly, taking the 150-some essentially unregistered securities with centralized teams trying to increase the price of their coin or whatever on Coinbase, those are, obviously-- pass all four prongs of the Howey test and are securities by the laws that we have on the books. So I think if you're principled and not a hypocrite, you have to either argue for the abolition of the SEC, and the deregulation of Ponzi schemes targeting your grandma, and you need to be in favor of penny stock operators sending direct mail to nursing homes, or you need to regulate these penny stock cryptos on Coinbase the same way that you do securities.

DAVE BRIGGS: And, finally, the B over your left shoulder has not fallen off the wall, thankfully. It has fallen in recent days, though. We're talking 6% down about today, and down 60% year-to-date. What's a realistic bottom for you for Bitcoin?

CORY KLIPPSTEN: Yeah. I mean, I don't know that it matters that much because it's fallen so much at this point, people are kind of used to it. I think people would-- like, even the staunchest of bitcoiners would start to get kind of a knot in their gut if you saw four-figure Bitcoin, like sub-$10K. But I think the people that are hodling here in $17, $18, $19, $20 range are still going to be buying if they see something like-- I think the close of the week back in 2017 was $13,800, and that was also the high in the sort of precursor run-up in June of 2019. I think we hit $13,800 on June 26 of 2019 if I recall.

So it feels like there's some price memory somewhere in the high $13s. And you know, I'd probably start to feel it a little bit below that. But anything sort of above $13,800, $14,000, something like that just feels like a really good time to be picking up some cheap Bitcoin.

RACHELLE AKUFFO: And, Cory, for retail investors who are seeing some of these headlines about some of these exchanges, and, as you mentioned, perhaps not really differentiating 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 self-sovereign money. At Swan.com, that's everything that we teach, and we preach, and we educate people about is taking custody. I think what you want to make sure of, though, is even if you are using an exchange, and you're not taking self-custody, and you're leaving it with a custodian, just make sure that setup is good.

And don't sign something that lets them go and rehypothecate their coins-- meaning don't let them go lend out your coins. The risk-reward is not worth it. It never has been. And I think that's being laid obviously bare today. So just make sure that it's in a user-segregated account that only you can remove the coins and that you didn't sign something that said that they can go and trade them for you.

RACHELLE AKUFFO: Do your homework. Thank you so much. Cory Klippsten there, Swan Bitcoin CEO. Thank you.

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