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Bitcoin investor details ‘perfect storm’ behind crypto market action

Future Perfect Ventures CEO Jalak Jobanputra joins Yahoo Finance Live to discuss bitcoin dropping below $30,000, Fed tightening, volatility, and the outlook for the crypto market.

Video Transcript

- NFTs, Bitcoin, even the usually solid stablecoins have been rattled by the current market. Joining us now to discuss the current state of the crypto market and what could lie ahead for future, Future/Perfect ventures founder and CEO Jalak Jobanputra, great to have you here with us. Help us break this down, a lot of fear that has permeated over from the equity markets into the crypto landscape right now.

JALAK JOBANPUTRA: Well, it's great to be back here. Thanks for having me. Well, I think we need to take a step back and look at what's been happening from a macro standpoint and what's been happening specifically in crypto. And then we can certainly talk about its implications and opportunities, because when we see this kind of volatility, there are always opportunities to invest.

We have seen a perfect storm, as you just alluded to, of macro conditions. The stock market has been down significantly over the last week. We have inflation fears, Fed tightening, as well as the war in Ukraine. So a lot of those factors have contributed to a risk-off environment for stocks for almost every single asset class. And Bitcoin and crypto is no different from that.

And specifically within the crypto market over the past few days, we've seen one of the largest stablecoins, Terra, lose its peg to the dollar. Stablecoins are supposed to be stable and pegged to a fiat currency or commodity and collateralized by that. Terra is one of the few algorithmic stablecoins where there is no collateral, but is ruled by smart contracts to maintain that peg. And Terra lost that peg.

And its sister currency, Luna, also started going through a spiral downwards. And so Luna has lost-- it was 80% of its value. It's, I think, believe it's back up a little bit. Terra, as we can see, is back up off of some of its lows from $0.26 earlier today.

But that's certainly rattled the crypto markets in general, also affected Bitcoin in terms of Terra having reserves in Bitcoin. And in order to stabilize Terra, they sold some of that Bitcoin over the last few days. And that's when we've seen Bitcoin go under $30,000. It's now back above $30,000.

So there have been a number of factors. And then just yesterday, we saw Coinbase's earnings disappoint. So I would say it's this perfect storm of macro events, as well as specifically events happening within the crypto sector that has led to the big selloffs we've seen.

JULIE HYMAN: And so when you talk about-- it's Julie here. When you talk about opportunities, who has any money left to spend on opportunities, right? If you've seen the value of-- if you have been a big Bitcoin bull, even if you didn't buy at the top, even if you bought a little bit below the top, you're underwater. And so those assets-- and not just in Bitcoin, in everything else pretty much. So you would have to think that the liquidity of the sector has gone way down and you're going to see a crimping of valuations and a crimping of investment.

JALAK JOBANPUTRA: Not very different from other asset classes.

JULIE HYMAN: Well, it doesn't matter if it's different from other asset classes. You have seen so much enthusiasm within the crypto space. And on the private end of the crypto space, what we've been hearing from people, even as crypto has, even as prices have gone down, is that the investment has continued. So at some point there's got to be a reckoning, no?

JALAK JOBANPUTRA: Well, we are seeing that reckoning. Look, it's a highly volatile asset class. And those of us that have been investing in it for a number of years-- for Future/Perfect started investing in the sector in 2014. We've seen numerous drawdowns over time.

And even, look, we had Mt. Gox in 2013. We actually, Future/Perfect entered this sector in 2014 after Mt. Gox, because we thought this technology is here to stay. Now, speculators are going to come in and look at those short-term trades. But if you believe in the underlying technology behind some of the more stable, some of the crypto assets that have been around for a long time, such as Bitcoin, Ethereum is also off of its lows, we're seeing a flight to quality in the sector.

And so this is not new. We will continue to see volatility, because this technology and these assets are fairly new. And we're just starting to see institutional investment coming into this sector when it was primarily a retail investment.

So there are a number of factors here. But I always go back to the dot-com bust that we saw in 2001. That didn't mean that the internet was dead. That didn't mean that internet stocks were dead. There was just a lot of speculation ahead of the technology buildout.

And then when you start putting macro environmental conditions on top of that, you're going to have volatility. And you're going to have selloffs. We've had a number of new investors enter the crypto markets over the last few years. They have not seen downturns of this magnitude or haven't seen some of the failures, such as what we saw with Terra losing its peg.

So it's new for a lot of investors. And they may be skittish and will sell off. But they're certainly, I mean, we're long-term bullish on the sector. We're long-term bullish on the technology behind these crypto assets. And we will continue to invest. And we think there's opportunity in this market.

- Do you think the Federal Reserve, Jalak, entering a prolonged period of rate hikes, will they cause more crypto winners?

JALAK JOBANPUTRA: Well, we've seen, we've seen Bitcoin affected by this policy. We've seen other crypto assets. And Bitcoin is usually the leader in terms of what happens in the rest of the crypto asset industry. Terra was an unusual case, where Terra really drove that fear into other crypto assets.

So I believe that we will continue to see volatility in the sector. But the Fed has been very clear about their policy. I believe a lot of it's priced in. And some of the action that we saw happen over the last few days has to do with macro conditions, but also what happened specifically with the depegging of Terra.

JULIE HYMAN: Jalak, thanks for being a good sport. We know it's a tough broader environment right now. Future/Perfect Ventures CEO Jalak Jobanputra, good to talk to you. Appreciate it.

JALAK JOBANPUTRA: Great to be here. Thanks.