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NFT utility ‘is coming to the fore,’ analyst says

BTIG Managing Director and Financials Analyst Mark Palmer joins Yahoo Finance Live to discuss bitcoin’s correlation with risky assets, the use of NFTs, and the outlook for ethereum and Web3 after the merge.

Video Transcript

JULIE HYMAN: Winter isn't coming for crypto, it's already arrived. BTIG just wrapped up its second annual Digital Assets Conference featuring 180 companies. A big focus of this year's meeting was how companies are weathering the downturn and also the future of digital assets.

This, as we just talked about, Bitcoin dropping below 20,000. Joining us on this, one of the conference's hosts, BTIG Managing Director and Financials Analyst Mark Palmer. Mark, it's always good to talk with you to get your thoughts on all of this.

We were just talking about, with David, the sort of increased correlation between stocks and Bitcoin, tech stocks in particular and Bitcoin. How are people sort of viewing that right now in this environment?

MARK PALMER: Yes, there definitely has been a correlation between risk assets and speculative cryptocurrencies, there's no question. Bitcoin is certainly reflecting that, as are the proof of stake cryptocurrencies and altcoins. But at the same time, I think one of the things that popped out of this conference is the fact that not all crypto-focused firms are in the same position.

Yes, the exchanges and the brokerages are seeing volumes that are down significantly as a consequence of the price decline. But if you look at a platform like a Silvergate Capital, which serves institutions basically as an on and off-ramp for crypto, has a really exciting stablecoin initiative that it's working on. It's really demonstrated resilience during the crypto winter. It was reflected in the company's second quarter results, which were better than had been feared, significantly better in fact.

So I think that this is a time, really, for those who are looking at crypto stocks to put on their analyst's hats and think about taking a careful look at the fundamentals of these companies rather than putting them all in one pile.

BRAD SMITH: Outside of core crypto, what do you believe retains value after this crypto washout or this crypto winter?

MARK PALMER: Well, again, remember there's much more to Web3 and the ecosystem than just speculative cryptocurrencies. And we're seeing this now. There's been 16 billion raised by Web3 firms during the first half of 2022. We're seeing new unicorns created, even amidst the crypto winter.

And I think the key thing here is that there needs to be infrastructure built, on the one hand, to prepare for the time when the winter ends and we see more players coming into the space, particularly on the institutional front. And I think that the number one reason why institutions haven't plunged into crypto to a greater extent is a lack of regulatory clarity. But that's not keeping them from coming into the space, setting up shop, getting up to speed on where things are. Frankly, that was a big part of what our conference was all about.

At the same time, I think you're seeing pockets of Web3 that are outperforming significantly. We were just talking about the Ethereum merge. Well, Ethereum's move from proof of work to proof of stake has created enormous demand for staking. We had staking platforms speaking during our conference that were telling us that their volumes have doubled during the first half of the year. And they expect them to ramp up further now that the merge has occurred.

And frankly, if you look at the publicly traded companies out there, a company like Coinbase has a staking platform available for both retail investors and institutions. We think that's an overlooked part of that story.

BRAD SMITH: But for Web3 to really take off, it would need to have other assets on top of Web3 that are also carrying their own value too. I mean, we've seen a wipeout in some of the kind of annexed nonfungible tokens that have been on top of the Ethereum blockchain. And so even with that downfall in some of that value for the assets that are on top of the blockchain, where do we start to regain some of the attention or some of the fanfare or comfortability with people saying, you know what, I'm willing to ascribe value to something that's sitting on top of a Web3 platform that perhaps they haven't fully wrapped their heads around yet?

MARK PALMER: Right. Well, NFTs are a good example. I think that in retrospect, what happened to the NFT market during 2021 in particular was more of a furor or a craze. And there was a lot of froth in that market that wasn't really justified by fundamentals.

Frankly, one of the things that we're seeing in the NFT space is that the utility of NFTs is really coming to the fore. The fact that this is not just about art, that there are many other use cases for NFTs. The programmability of NFTs is really coming to the fore. So we're talking about the use of NFTs to make supply chains more efficient, as use for storing medical records in a much more efficient manner.

That utility aspect, I think, is going to really be a bigger part of the NFT story going forward. It's not just about collectibles. There certainly is a market for that.

One thing I will say on that regard is that a theme of our conference is the number of brands, big consumer brands that are using NFTs as a means of increasing engagement with their customer bases. We're seeing this from sports franchises. We're seeing this from everything from liquor brands that are enabling liquor to be traded, essentially to change hands, because it is embedded within an NFT, to all sorts of brands that are looking to establish a presence within various metaverse games, "Decentraland," "The Sandbox," and the like.

BRAD SMITH: BTIG managing director and financials analyst Mark Palmer. We've got to continue the conversation at a later date. But we appreciate you joining us here this morning.