“We’re seeing a flight into bitcoin and ethereum” after SVB’s collapse, says Nexo’s co-founder

“We’re seeing a flight into bitcoin and ethereum” after SVB’s collapse, says Nexo’s co-founder

Nexo’s co-founder and managing partner Antoni Trenchev joins Yahoo Finance Live to discuss the collapse of Silicon Valley Bank, the state of the crypto industry and regulation.

Video transcription

RACHELLE AKUFFO: Let’s keep the conversation going now about what the fallout from the SVB episode about the crypto industry is. Joining us now is Antoni Trenchev, Nexo’s co-founder and managing partner. So I want to ask you, Antoni, as you go back and look at this, what’s the most important thing that you can take away from what’s happened in the last 24 hours and maybe some of the lessons that you can learn from this?

ANTONI TRENCHEV: I think there are very important lessons here, and there are a few of them. And let me start by saying that I don’t think we’re out of the woods yet for a couple of reasons. First of all, we’re seeing a flight into Bitcoin and Ethereum because people want to escape some of the smaller caps and some of the stablecoins that are out there. So there’s this internal rally within the blockchain, blockchain space, OK?

So secondly, I think an important lesson is that this particular crisis in crypto and we as an industry have our fair share of sins, especially with the unraveling last year. It has become clear. But I don’t think this particular crisis, it’s the blockchain industry as such to blame. This is like– you know, USDC, they did everything right. They put dollars in a federally insured bank, the 16th largest, and that created an uproar.

And then the third important takeaway is that the regulators and politicians in the US are obviously not as excited about crypto as we thought they were a few years ago. And I say this euphemistically because what we see is going to have consequences and second-order effects for a very long time in the industry.

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RACHELLE AKUFFO: I mean, we’re still seeing the fallout from FTX as it continues to unravel. But do you think we will see the same kind of contagion or domino effect after the collapse now of Signature Bank and SVB as well?

ANTONI TRENCHEV: Well, I would… Signature Bank is a total surprise. From what I heard, even the executives, they found out that Signature is going to be shut out just five minutes before the Fed issued their press release. I don’t know exactly what was wrong in Signature Bank. And I’m not a fan of conspiracy theories, but it’s obvious right now that the blockchain space has very limited access to fiat and that the banks that serviced the space are all but gone. There are some small ones left there.

And this is of some importance for a number of reasons, and I think a notable one is the fact that new money, if they want to enter the space from US dollars to crypto-native assets, will have a very difficult time. So the second-order effects of the shutdowns of the fiat ramps will be felt in the months to come. It very much depends on what the regulators have in store for us.

And by the way, this is why, predicting this 18 months ago, we began to exit the US market in an orderly manner and replace that market share with other regions of the world.

RACHELLE AKUFFO: So what do Nexo’s customers do in light of this, and how do you position the company?

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ANTONI TRENCHEV: Well, I think that as a company we’re in a very strong position financially and, you know, just as products and services because they’re developed from what we see in demand from our customers. And you know, weaker hands have left the platform during 2022, so we have hardcore fans who are the only ones left. What they’re doing right now is they’re on the sidelines. They’re waiting to see how this plays out and are ready to deploy capital because, you know, a lot of people — certainly some of the bigger whales that I’m personally in touch with see this as a bear market rally despite the fact that Bitcoin is up, I don’t know, probably 17% on the day.

But as I started, this is a flight to quality from some of the other assets. And you know, a lot of money on the sidelines, that’s for sure. And it will be distributed, but I believe at slightly lower levels than where we are currently trading.

RACHELLE AKUFFO: So I also want to ask you about the Fed’s reaction to this. Obviously, we saw the government step in and make some special exceptions here in terms of stopping these types of accounts. What does it mean for crypto? Once you have that precedent start to be set, is that a good thing for crypto?

ANTONI TRENCHEV: It’s a confusing thing for crypto because we had Janet Yellen say anything and everything but President Biden this morning contradicting her. And you know, it’s unfortunate because it turns out that regulation and having watchdogs regulating the devices doesn’t stop bad things from happening. I talk about the banks because this is always the criticism about crypto companies. Oh, they need to be regulated. They must be managed. They must be with proper checks and balances.

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And what happened to all this in the sector? Because what we saw is that depositors are getting their money back not because of strict risk management by the banks and prudence, but because the federal government steps in and guarantees everyone’s dollar. So I think that says a lot about structural issues. And this will have some effects on the industry, especially what we talked about, entry and exit.

You know, but one of my favorite things about crypto as such is the opportunity for startups to fail and fail quickly so that the good actors can succeed. The bad apples can be sorted out. And this is what promotes innovation, I think. And over the past few years, we haven’t seen that opportunity in traditional markets. Yes, it’s painful, but I think it’s a cleansing process, which is positive.

RACHELLE AKUFFO: A cleansing process, that’s definitely a good way to look at it. Antoni Trenchev there, Nexo co-founder and managing partner. Thank you for joining me today.

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