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How the Fed's hawkish stance is 'hurting crypto'

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Fundstrat Lead Digital Asset Strategist, David Grider, joins Yahoo Finance to discuss how the crypto space is experiencing an extended time of volatility as China’s crackdown and the Fed’s hawkish stance could affect the future of the crypto economy.

Video Transcript

MYLES UDLAND: But we begin this morning with what's happening in the cryptocurrency space. Again, as we mentioned, we see the majors under pressure. Bitcoin right around $30,000, Ether back below 2000. Obviously, over a longer time frame, these cryptocurrencies are up a significant amount. But so far this year, we are now approaching Bitcoin basically being flat for 2021 in a year where there has been a lot of attention on the space.

And joining us now to talk a little bit more about how to think about these crypto moves is David Grider. He's the lead Digital Asset Strategist over at Fundstrat. David, thanks for jumping on this morning. I'd love to just start with your thoughts on how you guys are thinking about the most recent price moves, and the conversations that that you're hearing from clients. As we've seen, you know, the $60,000 exuberance has been out of the market for a little bit. But there had been some stabilization before we're kind of looking at this latest slide.

DAVID GRIDER: Yeah, absolutely. Thanks for having me on. We obviously have seen quite a bit of volatility in crypto as of late. As you mentioned, it's been a very strong market in 2020. And I think we had a lot of macro factors that are driving us higher and great stories. And I think that that kind of turned in Q2, obviously, of 2021.

And what we've seen with the latest sell-off is over the last week when we had the fed announcement. I think a lot of risk assets and a lot of folks that took the fed's commentary, the dot plot specific, is potentially looking at more hawkish view on what it could mean for their policy. And I think some risk assets got hurt by that, I think that that was crypto included. But we've seen other assets rebound since then.

And I think that the last couple of days, what's been driving crypto's divergence has really what's been going on with China. And there's been quite a bit more crackdowns there or regulatory scrutiny that's been kind of coming out of that. China taking some additional measures. We know that it's been not legal to invest in Bitcoin and crypto there for some time. But they're getting a little more strict in clamping down on things from mining to doing some things with some of the exchanges there, too.

Very lately, yesterday, in fact, some of the OTC desks, the government is shutting down access to the banking system. So that's what's been kind of sparking the sell-off that we've seen over the last couple of days.

BRIAN SOZZI: David, what are the chances that Bitcoin gets cut in half over the next month? Because I'm not sure about you, but I don't see any upside catalysts. I see fears of increased regulation. I hear the likes of Tesla CEO Elon Musk going out there, tweeting, voicing his concerns about what Bitcoin is doing to mining. Why can't it be cut in half?

DAVID GRIDER: Yeah, I don't want to make a prediction that it'll be cut in half or not over the next month. I mean, there's definitely a lot of volatility that's always possible in crypto. I think that what we're seeing in the market is I think a lot of institutional folks, a lot of people who had kind of missed the early part of the rally have actually been buying this tip. I think there's a bit of exhaustion. Maybe some folks are with dry powder looking at your market. Maybe that's fading a little bit. So that's conversations we're having with other firms and other desks to get kind of market color there.

I think that, I think you're right. We do need some catalysts to kind of emerge to take us higher. I mean, the currency thing with some of the Latin American countries, the adoption, that was one thing. El Salvador, that was kind of, took us a little more bullish for a little bit. But I would say that the market tone is very bearish right now. I think we went from very exuberant to very bearish. And I think that also, if you have to think about kind of when markets are better to start adding and increasing exposure, it's usually when folks are scared and not looking to buy. I think that that's one thing I always keep in mind as kind of a sound, depressing principle.

JULIE HYMAN: David, it feels to me like folks who are in cryptocurrency, it's a little bit like gold in the sense that you're always going to think it's going to be going higher. I mean, I don't think we have a equivalent term for gold bugs quite yet. So as someone whose firm has been pretty bullish on Bitcoin pretty consistently, what do you do at a time like this? And how do you try to be unbiased when you're looking at where the price action is going to go next, when so much is riding on Bitcoin going up?

DAVID GRIDER: Yeah, I think that's right. I do think that the long term, if you look at it over the next three years, I think the thesis still is very strong. I think we have to really underwrite our thesis. When market conditions change, and when prices kind of go against your thesis, it doesn't mean you have to sell, or it doesn't mean that you're wrong. But what it means is you have to underwrite your thesis again, and you have to re-evaluate, do those fundamentals still hold? I think from the macro picture, some things have softened that we were looking at. But I think there's still a number of macro factors that still remain really accommodative for risk on assets like crypto.

I don't actually view crypto or Bitcoin, really, as purely digital gold. I think that that narrative plays for some folks. But there's a lot of other ways to think about this from tech adoption thesis. This crypto economy, I think what you're going to start seeing with the fundamentals of the crypto economy is people are going to start differentiating a bit more, just like they are in the traditional economy here with different sectors that are going to outperform when you have a reopening.

So if you look at some of the cloud native platforms, right, the Ethereums of the world, these things are doing massive amounts of revenue and transaction fees. A lot of the fintech DeFi application platforms, these things look a lot like digital banks. In the terms that they're equity-like and they have priced the sale multiples that are in line with traditional fintechs.

I think that you can see some of that economy start to get differentiated as the market gets a little more mature and a little more sophisticated. But obviously, Bitcoin being such a big piece of it is going to really be the main flow indicator. And what you've seen now is kind of indiscriminate price action corresponding with the selling of the broader market.

MYLES UDLAND: You know, David, I'm also curious how much you guys are looking at the technical setup in the charts for all of these. Because I think what has so many folks from our more traditional finance world interested in cryptocurrency is that they are such a pure technical setup so often when you just look at the price action. And I'm just curious how much that plays into your guys' process. And if so, what you've seen there in the last month or so.

DAVID GRIDER: Yeah. I don't spend a ton of time on the technicals myself as much as I do in the fundamentals of the flows and what the markets are kind of telling me across different areas of the market. I can say that I think a lot of technical strategists were looking for kind of 30,000 as the level. I think people were kind of iffy below that, what happens if you get sustained break below that. But I think we're still thinking that we've been holding up very well in the sell-off that we've seen. We've seen a lot of the crypto market deflate a bit. But we've also seen Bitcoin kind of gain some consolidating of, really gaining back its market dominance, which is a share of the total market cap.

So money is flowing there is kind of the lowest beta. It's kind of been able to hold up above 30,000. So I think that that's encouraging.

MYLES UDLAND: All right, David Grider, Lead Digital Asset Strategist over at Fundstrat. David, really appreciate you jumping on on short notice this morning, and I hope we'll stay in touch

DAVID GRIDER: Thanks a lot.