Crypto collapses ‘shining a very harsh light’ on industry practices, expert says
Emily Parker, CoinDesk Managing Director of Global Content, breaks down crypto broker Voyager Digital's filing for bankruptcy, how crypto-aligned companies are managing through the crypto winter, and the outlook on FTX expansion.
JARED BLIKRE: Welcome back. Bitcoin seeing a little green today, trading just over $20,000. Unfortunately, a lot of companies in the crypto space aren't getting a boost. Crypto broker Voyager Digital filed for a bankruptcy protection a week after temporarily suspending trading deposits and withdrawals.
And I'll tell you what, Emily Parker from CoinDesk, where she is the managing editor of global content, she is here to talk about this with us. And Emily, I got to ask you about this bankruptcy. This is a stock that was trading at $0.27, I think, a day ago. And a year ago, it was trading at about 20 bucks. That is a 98% drop. The losses are palpable here. What are you making of this?
EMILY PARKER: Yeah, I mean, this is just another example of some of the carnage that we are seeing in the crypto market. I think the key term here is "contagion." A lot of these collapses are linked. So when you look at Voyager, for example, one of the big problems here is that it lent a lot of money, hundreds of millions of dollars, to the hedge fund, Three Arrows Capital, that is also filing for bankruptcy. So this is kind of a bad combination. They're not going to get that money back.
And then you have Three Arrows Capital, which was heavily exposed to Terra Luna. They were a big investor in Terra Luna, which imploded. So you have this ripple effect going throughout the industry. And I think people are waiting for the other shoe to fall.
RACHELLE AKUFFO: And we're obviously seeing FTX's Sam Bankman-Fried weighing in on this. He actually said that there are some third tier exchanges that are already secretly insolvent. Just how widespread do you think this contagion could be? And are there particular exchanges, like the ones that act like CD accounts, that are really the ones that are going to suffer right now?
EMILY PARKER: I mean, I definitely wouldn't be surprised. I think this is really shining a very harsh light on some of the practices in the cryptocurrency industry, namely very poor risk management. And when everybody was flying high and Bitcoin was hitting all-time highs, I think people were looking-- willing to overlook a lot of really risky practices, like being under collateralized. Everyone's like, great, I'm getting high returns. I'm not going to look too carefully at how these returns are generated or who these entities are lending to.
And now we're seeing-- I mean, as you said earlier, I mean, Voyager looks-- was really flying high not that long ago. You know, I mean, some of these entities looked almost-- I don't know-- indestructible. And now they are-- they're getting destroyed.
JARED BLIKRE: Yeah, it is-- kind of puts the word "decimated" into a new context here. I've got a report here from Glassnode, and I want to ask you about this. People like to follow the whales, the big guys in blockchain, in-- excuse me, in Bitcoin and other occurrences there. On-chain activity in cryptocurrencies dropped by 13% in early July from November's highs. And this is a level seen in the last bear phase that was in 2018, 2019, when Bitcoin was less than $10,000. Do you make anything of this that the whales are kind of in hibernation right now?
EMILY PARKER: Oh, yeah, that's a really interesting data point. I hadn't seen that. I mean, maybe. I mean, you're hearing a lot of different reports about whales and what they're doing. If you're referring to whales like institutional investors, for example, there are some people who are saying that they are exacerbating the crash and others who are saying that they're buying the dip. But basically, what you're saying is that they're not just doing anything at all. So it's interesting. I mean, there's different ways to read that data, but yeah, I mean, maybe they are sitting it out for now.
RACHELLE AKUFFO: And a lot of things people are still waiting for. You're waiting for what's going to happen with Ethereum and the merge, also trying to get their spot Bitcoin ETF up, which never seems to be getting off the ground at this point. But we're seeing that FTX is pressing for a crypto derivatives approval. What is the game plan here? And what is FTX's plan overall, as we're seeing them sort of trying to prop up the industry? Obviously, a lot of self interest there. But what do you see as the main strategy here for FTX?
EMILY PARKER: You know, it's really interesting. I think that in every bear market in every crypto winter, some winners are going to emerge. Now I don't know if that winner is going to be FTX. But I think that Sam Bankman-Fried is sort of emerging or positioning himself almost as a savior of this industry, right?
He's going for this very ambitious regulatory approval in derivatives. That's just one part of what he's doing, right? He also just struck a deal to get the option to acquire BlockFi. He's suggested that he would be willing to acquire troubled miners. So he's kind of positioning himself very differently from a lot of other people in the crypto industry who are sinking.
Another outlier here is Binance. I think what Binance is doing is really interesting. If you compare Binance, for example, to Coinbase, you know, Coinbase just laid off 18% of their workforce. Meanwhile, you know, CZ, the CEO of Binance, is talking about aggressively hiring. They just cut global trading fees.
So, yeah, I don't know. I mean, I think Sam-- I think, look, it appears that Sam Bankman-Fried is very committed to the survival of the cryptocurrency industry. And I think that's his endgame here, right? I mean, I think he, like everybody else, is very concerned about what's going on. And he has the resources to do something about it. And that appears to be what he is doing.
JARED BLIKRE: Yeah, and as FTX and Sam, they're getting all the headlines-- and deservedly so-- I'm just wondering, Wall Street has pumped about $2 trillion into cryptocurrency infrastructure to bring it mainstream. I don't think that's going to end. I'm just wondering, when do they start scooping in-- scooping up some of these beaten down names, if at all?
EMILY PARKER: Yeah, I mean, that's a good question. I mean, there were definitely some reports of Goldman Sachs looking into Celsius. But yeah, I mean, I think that the question of the institutional investors, what they're going to do, is really important.
Because if you remember last year, institutional investors were such a big part of the crypto boom. They were such a big part of the story. And now it's like, yeah, I mean, how long are they going to stick around? I mean, some of them probably will be buying the dip, but some of them will also be exiting. And I think that's going to be-- that's a really important thing to look out for, going forward.
RACHELLE AKUFFO: So then, as you look at the distinction between what retail investors are doing with some of these crypto and crypto-related stocks versus what institutional investors are doing, what sort of patterns are you seeing emerge?
EMILY PARKER: It's so hard to say on retail and on retail patterns. I mean, I think-- because, of course, it depends on when you got into the market. Look, I'm sure there's some retail investors out there that are like, OK, before, crypto was so overpriced. And now there's a chance to get in. But then there are also are no small number of crypto investors that probably bought at the highs or the near highs based on FOMO. And some of those people are getting seriously hurt, right?
So I think it's really difficult to make a generalization about retail investors writ large. But in general I mean, if you look at the narrative about crypto that's out there when there's just sort of one bankruptcy after another, one implosion after another, I can't imagine that that's sending a very soothing signal to retail investors.
RACHELLE AKUFFO: Indeed. Well, it was good to have you on. Emily Parker there, CoinDesk managing director of global content. Thanks so much.