Crypto: The third-largest stablecoin is ‘collapsing in real time,’ expert says

CoinDesk Executive Director of Global Content Emily Parker sits down with Yahoo Finance Live to break down bitcoin's price drop and the collapse of Terra's Luna as a stablecoin, Coinbase, the current crypto sell-off, and the future for digital asset regulation.

Video Transcript

RACHELLE AKUFFO: Welcome back, everyone. You've probably got whiplash trying to figure out crypto's next movements and how low Bitcoin could really go. Well, to break this down for us, we're joined by Emily Parker, executive director of global content at CoinDesk. Always good to have you. So I want to start with something that your average person probably hasn't heard of, the Terra Project, and its two tokens, UST and Luna. A lot of people hadn't heard of them until crypto's last tumble. What do investors need to know about this recent plummet and any links it has to what we're seeing with Bitcoin's movement?

EMILY PARKER: So I have never seen anything like this. This is the collapse of what was the third largest stablecoin. And it's basically been collapsing in real-time. And yeah, it's pretty amazing. So this is something that there have been a lot of concerns about stablecoins, including from regulators and lawmakers. The question is, is a stablecoin really stable? Because the whole idea is that a stablecoin USD-- UST is supposed to be equal to $1. It has fallen way off the dollar peg and is bringing down a lot of people with it.

Now, you have a lot of people. There's a lot of comments, really sad comments on Twitter and on Reddit, people talking about losing their life savings. So a lot of people are really being hurt by this. I think this could pave the way for stablecoin regulation to come sooner than expected.

And as for Bitcoin, Bitcoin plays a role in this as well, because Bitcoin was used as a way to try to shore up the price or shore up the peg that didn't really succeed. Right now, we're not seeing as dramatic as the impact on Bitcoin as many would have expected. But, you know, this is such-- this stablecoin is such a big part of the crypto market that its collapse could have implications across the board.

SEANA SMITH: Emily, we've got to talk about Coinbase. It's one of the big stories in crypto today. Shares, they're off nearly 30%. They just reported a weak quarter. I don't think it took many people by surprise, given that volatility that you were just talking about in Bitcoin and a number of other crypto trades. But what does this mean for a name like Coinbase? When the market is so volatile, you see investors willing to dump crypto as soon as they get nervous. What does this mean for this space in some of these larger companies here?

EMILY PARKER: Sure, so this was a concern from as early as when Coinbase went public. Coinbase's fate is just tied very directly to a very volatile industry. So Coinbase had reported relatively unimpressive earnings, and this was largely because of fall in trading volumes. And Coinbase makes a lot of its money off of transaction fees. And so when you have low trading volumes, you're not going to have high transaction fees.

Now, Coinbase has been trying to diversify with, like, an NFT platform, which, again, doesn't seem to be as exciting as some people had anticipated. But yeah, I mean, we're also seeing CoinDesk-- excuse me, Coinbase's stock go down. So, yeah, I mean, I think its fate is very, very much tied to the fluctuations in the cryptocurrency market.

DAVE BRIGGS: So we've got Luna, we've got Coinbase, the price of Bitcoin falling below 29, and yet, record venture funding in the quarter. In the US alone, $5.8 billion raised. Where's the disconnect there?

EMILY PARKER: That's a great question. So, yeah, I mean, look, the cryptocurrency market is a roller coaster. And what's happening right now is not crypto specific. As you can see, the larger market is taking a beating as well. So a lot of this has to do with global macro trends, and not cryptocurrency specifically. So, you know, I mean, there are definitely some people who will say, well, I'm going to keep building. I'm going to keep investing in these big projects. But yeah, I mean, there has been a lot of froth in cryptocurrency funding. And I think there is reason to be concerned that some of these projects are not going to make it.

RACHELLE AKUFFO: And we have had one of our guests saying, we're already in the middle of a crypto winter. Do you agree with that? And is it going to get worse before it gets better?

EMILY PARKER: So I think the way to look at it is that crypto's fate, for better or worse, is now very much linked to the overall market. And that's what we've been seeing. We've been seeing quite a strong correlation between cryptocurrency markets and the stock market. So basically, that's just a question about what's going to happen in the world.

I mean, what's impacting the stock market? It looks like partly concerns over inflation, partly concerns over higher interest rates, partly just global macro instability, supply chain issues in China. And cryptocurrency is moving largely in tandem with these trends. So I think, yeah, that's really the question. It's like, what's going to happen in the larger market? And then that will-- seems to trickle down to Bitcoin as well.

SEANA SMITH: Emily, another piece of the puzzle here where it still remains to be seen what's going to happen is when it comes to regulations. Concerns here in the US on Coinbase's call today, mentioning the concerns out of India, the fact that Coinbase had to halt their services in India just a few days after they launched because of pressure from the Reserve Bank of India. When you have a massive outlying factor like this and regulation, we don't really know what is going to come of it. How much does that-- how much influence do you see that having over the price of some of these cryptos, at least in the short term?

EMILY PARKER: Yes, I mean, we've seen in the past that regulation can definitely have an impact on the crypto market. But as we've just seen with this whole UST debacle, I mean, regulation is coming. Stablecoin regulation is coming. I mean, that's-- this seems very, very clear. And it's not necessarily a bad thing because what's worse for the crypto market-- crypto regulation or having a lot of people lose their savings because of a failed project?

So I guess it just depends on the type of regulation. But I think in the United States, for example, the uncertainty about regulation and a lack of clarity about regulation has been worse for the crypto market than regulation itself. So I think there's actually a chance that regulation could have some kind of calming effect because as we all know, uncertainty is not good for financial markets.

DAVE BRIGGS: OK, coming full circle to where Rachelle started this segment, how low can Bitcoin go? Infants are old enough to remember there was once talk of Bitcoin 100K. That seems all but forgotten. And how good does Elizabeth Warren and the Labor Department look right now for criticizing Fidelity for allowing 401(k)s in their retirement funds?

EMILY PARKER: I mean, it really just depends on what your outlook is, right? I mean, of course, a lot of people are sort of drawing these analogies, saying, like, OK, if you invested in Bitcoin at this time, you'd be really down. But Bitcoin has been steadily going up over the years, right? And if you look at-- go back to March of 2020, I think Bitcoin dipped to something around 3,000 at that time. So if you invested at that time, you would have made quite a lot of money off of Bitcoin, right?

So it really just depends on your vantage point. I mean, I think Bitcoin is very much a long-term narrative. I mean, that's at least how I see it, right? I mean, Bitcoin is a long-term play. So if you're in it for the long-term, it's possible that this may just be a blip, right? But if you're-- I mean, that's so-- it really just depends on what your time horizon is.

DAVE BRIGGS: Of course, an estimated 40% of crypto holders are underwater momentarily. Tough to sell them on that. Thank you, Emily Parker. We appreciate you always.