The crypto winter is just around the corner and is affecting institutional and private investors alike.
In a webinar hosted by Barron’s Live on July 21 financial news spoke to Charles Allen, chief executive of blockchain infrastructure company BTCS, to discuss the lingering aftermath of the crash, the role of regulators, and next steps for digital assets.
This excerpt has been edited for clarity and brevity.
What do you think of the crypto crash?
It’s not just the crypto market. The overall economy is generally shaky. The background of other problems is huge.
If you look at crypto, it all started with Terra and the algorithmic stablecoin crash. This set certain events in motion. On the positive side, we have seen crypto prices surge over the past few days. It really creates opportunities if you understand and are willing to take the time to learn the technology and what it can do.
The best thing you can do is take a step back and look back over the past eight to ten years. See where crypto was then and where it is now; this is just a slip.
Regulators are starting to watch the crypto market more closely. How do you think it will go?
This is a very positive thing for the industry. I got into crypto in 2013. It was very different then. Goldman Sachs wasn’t looking at crypto and institutions weren’t looking at it.
When companies first started using crypto or operating like a bank, or in the first coin offering craze in 2017, those things were largely effectively securities. Regulators have been sitting on the sidelines.
It’s really important to have a good policy. When it comes to stocks, you want capital accumulation and orderly markets. Investor protection comes before capital formation.
In this case, we don’t want to impede the technology; We really want blockchain technologies to grow, thrive and be a cornerstone of economic growth. Reasonable regulation makes a lot of sense for this. You gotta get the bad actors out.
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Hopefully regulators get it right. It might be a little knee-jerk reaction. It usually always happens like this and then a pullback, but I think it’s positive.
It can’t just be left to regulators to get things right. What does the industry itself need to do to restore trust in digital assets?
One thing you’re likely to see is that a lot of retail investors and people who hold crypto are starting to think a little more seriously about who they’re doing business with. They’ll probably start trying to hold their own private keys – if you’ve heard that expression: “not your keys, not your money”.
You don’t necessarily need the protection of the Federal Deposit Insurance Corporation with crypto. Just take your money and secure it yourself. If you have your own money, you don’t have to worry about a bank failure. What kind of institution is this where I keep my money? What do you do? How are they giving me these returns?
I think hopefully people will start to get a little smarter.
But on the other hand, humans have very short memories. If crypto bounces back, people will, to some extent, forget why some of these things happened. Hopefully they’ll take the lessons learned and start managing and tracking their own money more productively.
Do you think they’ll be scarred by the crash? Are people shutting down from crypto?
It depends on the individual. When someone has lost a lot of money, it will be difficult to swallow. One of the things I find very interesting about looking at either the stock market or even the crypto market is the great fear of missing out.
People tend to always buy at the top. You have invested at the top and not at the bottom. This has happened in the stock market, this is happening in the crypto market. It’s a very quirky human behavior when you’re negotiating everything else in life, but it doesn’t typically happen that often when you’re trying to get the best deal in the stock market unless you’re a professional investor.
Hope the trust isn’t lost. The interesting thing is that blockchains really didn’t fail. Bitcoin’s blockchain has never been hacked, Ethereum is staying strong. Most of these blockchains have never had any problems. If you look at Celsius, it repaid its De-Fi loans before filing for bankruptcy.
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If you’re an outsider learning about this area, it’s a really interesting time to look at how robust the technology is.
Before the crash, there was a major push to legitimize crypto by involving institutional investors. What impact are they having and what impact will they have as crypto recovers?
It’s really very impressive that institutions have gotten into crypto. It’s changing the dynamics a bit — the dollar is flowing, the money supply has gone up, it’s pushed the price up.
Institutions also work according to a risk-on-risk-off approach. Crypto is traded almost like a tech stock. In 2014, in the beginning, it wasn’t really mainstream and did its own thing. It has now become its own asset class, which I find positive.
The more institutionalized it becomes, the less volatility the market will have. As investors become more sophisticated, it becomes more mainstream over time.
Many central banks are considering developing a central bank digital currency, effectively a central bank-backed stablecoin. What do you think of these efforts?
I hope we see central bank digital currencies. It would be huge. The way we move money is very efficient, at least in the US, but if you look at the pipes, it’s not a very good system. It was built on itself bit by bit; You have Swift and all these financial technologies and solutions when we can just re-rail. If governments repeated it, I think it would be amazing.
You can listen to our full interview with Charles here, on Apple, or on Spotify
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To contact the author of this story with feedback or updates, email Jeremy Chan