Nexo Co-Founder and Managing Partner Antoni Trenchev joins Yahoo Finance Live to discuss how the debt ceiling is impacting the crypto market, the crypto winter, the Fed's monetary policy, and confidence in the crypto market.
- The debt ceiling impasse has had a ripple effect across a variety of asset classes. Market participants have been cautious of treading too far into riskier assets, including alternatives like crypto. For more on that subject we have Antoni Trenchev, co-founder and managing partner of Nexo. So Antoni, set the stage for us. How has the debt impasse been affecting the crypto market?
ANTONI TRENCHEV: Well, for those of us who have been around a little longer with every debt ceiling debate the US is the closest it has ever been into the abyss. And we know how this ends. After all the rhetoric and the political capital has been maxed out on both sides of the aisle, I think there will be an amicable resolution and it will be raised and we can return to normal. I find it insane that the credit default swaps on US debt are higher than UBS, which was amidst the turmoil in mid March.
I look to short CDs, it turns out you have to have at least $100 million to do that. So not really my risk profile. But I think the whole thing is insane. It will settle down. But the good thing is that this all is positive for crypto.
- So OK, you speak of some positives, but crypto has been experiencing what's called crypto winter. Are we still in a crypto winter?
ANTONI TRENCHEV: We are. When you take the midterm view, obviously we came a long way down from the all time highs of 70. But then again, we had more than 100% in appreciation year to date and we still are closing to the highs of the year. I think it was very positive for Bitcoin as an asset class the way it performed during the regional banks crisis mid-March. We saw the decoupling of the asset yet again. Crypto in general, in particular, Bitcoin, which performed as the inflation and catastrophe hedge that it was designed to be.
And I just think that this shows us that Bitcoin is in a class and a league of its own when compared to other crypto, maybe Ethereum as well. But a better version of gold. So obviously it's going to drive during uncertainty. And uncertainty is the only constant we have had this past few years and that we will continue to have in the years to come in my humble opinion.
- So I know Bitcoin has been searching to kind of break out at, say, the 30,000 level and it's not there yet even though it's up today. How is the macroeconomic backdrop, whether we're talking about inflation or where interest rates stand affecting Bitcoin, Ethereum, and the broader crypto market?
ANTONI TRENCHEV: Yeah. I mean, like whatever we talked about, whether it's interest rates, whether is US debt ceiling, it ultimately comes back to the Fed. And they're expanding or contracting monetary policy. I think we've seen the contraction part play out to a large extent. So I probably will have a few more modest rate hikes, but that will be about it.
And then I think we have been-- we will be in a sort of a permanently high plateau for a while. So this has already been priced in and that's why we have been trading flat across the crypto for a while now but also equities and some commodities as well. And I think that is already priced in, but we will soon start to price in what will then be imminent and it is late in the year or lowering of rates, which I anticipate will be the response to not so high inflation. And we already saw it coming down to 4%, 4.5% in real terms. So you know, I think this is all good for crypto on the one, one and a half, to two year horizon.
- OK. And I got to ask you really quickly about just these meme coins. Look, they come into play. They develop a lot of just interest. They become really popular, but then some people also call them scammy. You a Dogecoin, now you have I don't even know how to pronounce it, Pepe coin. What does that do to confidence in the crypto market?
ANTONI TRENCHEV: Yeah. Here I'm not going to make many friends in the crypto industry, but I think that this simply shows that we have not learned some of the lessons of the past and people get caught up in the next cool thing and mania, whether it's now NFTs is on Bitcoin that are causing congestions of the network, whether it's other forms of insane NFTs, which have zero to no utility. And actually that is the thing that people wear as a badge of honor that this has no utility and it's a big middle finger to the financial system.
It's all fun if you can probably exert risk management and prudent asset management for your portfolio and your family. But this can all pretty quickly end in tears. So you have to tread with caution. But it is reminiscent of some of the stupidity that the blockchain space has exhibited in the past. So I really think it's counterproductive.
- And Antoni, it would be remiss of me not to ask, crypto challenges have affected your business, particularly some legal challenges overseas in the UK. Where do you stand with those?
ANTONI TRENCHEV: Oh, there are no legal challenges to speak of. In the UK I think that was a non-news event that for some reason got reported very heavily. We dissolved two dormant companies that we had intention to apply for certain licenses that then we changed plans. So really no event here.
The way we go about servicing our clients on a global basis is very transparent and remains unchanged. So nothing changes for the clients. We had some positive news towards the end of January where we exited the United States in a manner which caused some eyebrows settling with all 50 state regulators, the SEC on the federal level, turns out this was the smart move because we know the charges to companies that happened in the United States with this regulatory crackdown. So I beg to differ, this has all been very positive news on the legal side of the Nexo business and we are set up for the next bull run in crypto, which is imminent, in my opinion.
- All right, we'll have to leave it there. Antoni Trenchev, co-founder managing partner of Nexo.