Should Retail Investors Buy The Dip? | Crypto World

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Kevin, you said that 20% of your investments are in crypto. So I just want to start with, what are you doing? Are you exiting some of these positions or are you buying more?

No, I'm actually averaging down on a couple of the big market cap names. I mean, one of the challenges—and this is proof now for why we need legislation and policy on crypto—because if we had institutional capital coming in under the market, if they had allocated 50 basis points or 100 basis points to, let’s say, Ethereum or Bitcoin, Solana or Polygon, whatever, you would have had a bid. Instead, because we're basically under-owned by institutions, we have tremendous volatility. And we've seen this before; this is not new.

Um, it'll recover eventually, but this is the nature of crypto—unregulated. And so my argument is, this really should get us focused on policy. Right after the midterms, I’m hoping for policy on stable coins and then into other assets as well: NFTs, that kind of thing. We're at the nascent stage, but the volatility is because we don't have the institutional bid.

I do want to talk more about policy in just a moment, but before that, how should retail investors be thinking about this sell-off? Is it an opportunity to buy at a discount, or is it just too risky to make any sort of bet at the moment?

No, I mean, everybody has challenges with volatility. But I remind everybody, just go back 17 years to a stock called Amazon. It also corrected 38% to 50% every year for 12 years in a row as people tried to figure out what this new entity was. And so there’s always tremendous volatility in new and nascent technologies and new markets, and crypto is a new market. I still predict in 10 or 12 years, it'll be the 12th sector of the S&P. There’s just too much productivity opportunity here around payment systems and all kinds of other attributes of these blockchain projects that we just don’t yet know what the upside’s going to be.

And I’d argue this: if you go to any graduating class, particularly now, it’s very timely to say this, ask any engineering cohort. You’re going to find a third of the engineers go into the chain. They want to work there. They don’t want to work in the other 11 sectors of the economy. They want the opportunity to create something new, and that’s why you’ve got so much intellectual capital going into this space. You know with certainty, down the road, that the next genius ideas are going to come from this. Any college, any university, any engineer—they all want to work on the chain.

Well, on that last point, let’s talk about crypto-focused businesses for a moment. Coinbase this morning announced that they’re cutting 18% of their staff. Gemini had a similar announcement, as did Crypto.com. MicroStrategy is down 75% year-to-date. Are crypto companies uninvestable at this point?

No, I wouldn’t say that. There are two categories of crypto companies: ones that use leverage and ones that don’t. Now, when you have a very volatile asset and you have the fortitude—I’m going to use that word—to use leverage to enhance your returns, you also run the dark side downside risk of what happens when there’s a major correction, as is occurring right now. You can get caught offside pretty quickly.

And so Celsius, there’s a good example of that. And I don’t want this to sound trite, but let me explain how bottoms are made in any market. I don’t care if you’re in equities, or in debt, or in crypto, or in real estate. You always need a big player to go to zero. That always helps, whether it’s long-term capital or whether it’s one of these crypto infrastructure companies.

I would like to see—and I don’t want this to happen—but it always gives you a good bottom when you get a large player over-levered that goes to zero. And that always tends to be the beginning of the rebuilding process. So if you have to sacrifice someone who used too much leverage—and it’s always leveraged; it does this—somebody’s over-levered positions are complicated, they’re not transparent, they’re not liquid, and they go to zero. Someone is out there on the brink of zero. That’s okay. In fact, I’d argue that’s a good thing when we get it.

Now, do we get it this week? Do we get it next week? Someone’s going to zero; I don’t know who, but it’ll be great for everybody else that survives because everybody will learn from that. And that’s what I like about a washout event. I think we’re due for one in crypto land, and I don’t know who it’s gonna be but I guarantee you 100%—I’ve seen this movie before—you will learn later that somebody put on a heavily levered position, they got wiped out, and it’s good; it’s a good thing.

So to that point, how are you navigating this crypto winter for the crypto businesses that you’re involved in?

I don’t use leverage on crypto because I’ve seen volatility like this in the past. There are certain assets where I might put leverage on, but it won’t be in crypto. I mean, when you see volatility of 50% on an 11-month basis, which we’re seeing in Bitcoin, 60%—20 days on Ethereum—you can’t afford to put leverage on that.

But, you know, people will learn their lessons. This is a good thing in the sense that this generation of crypto investors has not gone through corrections like this and not gone through them with leverage. Now they’re going to learn an important lesson. Everybody I know that has survived volatility has had a very important lesson or a date with leverage, and they didn’t have a great dance that night, I must tell you.

Are there any takeaways for retail investors who are looking to buy the dip and add to their portfolio? Any categories of cryptocurrencies they should be looking at? Anything that they should be wary of?

I think right now, if you’re, you know, licking your wounds, go to the large-cap projects. I mean, the Ethereum, Bitcoin—obviously Polygon, Solana. Uh, thereon’s, Polygon’s been slaughtered, and it’s a good project. Great opportunity to add to it. I have very big positions in these names, and I’ve been nibbling as well. There’s nothing wrong— the one thing I would tell everybody is you can’t pick the bottom; it’s impossible. You have no idea when it’s going to happen.

But if you’re staying along the category, you need diversification. I have so many different positions on right now, and they’re all over the map. Now, come year-end, what will happen? Because this is a year where we’re going to be looking at tax returns on all crypto trading and income, there’ll be a lot of maneuvering on the projects that did not recover to take them as tax losses versus the ones that did. And that’s going to be the nimbleness of trading.

And that’s why it’s important to look at your positions and make sure you have liquidity in them because most of these projects are very, very liquid, so it’s not a problem. We actually haven’t seen—we had the Binance story yesterday—they looked for a couple of hours of room on what they called a lazy trade, the Celsius thing. Well, that’s a gate; that’s not good. So, um, that will not end well.

And when you lock the gate in a hedge fund, basically, you upset a lot of investors. And they, when they get the opportunity to sell, they do with a vengeance. Never good to do this; can’t help them. But, you know, they didn’t understand the situation, I guess. But there’ll be some money lost there. But Binance is the big daddy of them all on platforms, and they seem to be surviving. FTX looks fine; Circle rock solid. Didn’t break a buck; put out an announcement to their investors yesterday saying, look, to the extent we’ve had to have margin calls, there hasn’t been a problem.

You mean these are the things you look for in stress situations. You’ve got a lot of infrastructure holding its own. So I think there has been some maturation or maturity coming into the crypto market by these behemoth infrastructure projects. I’ll say the same for Bitbuy and for Wonderful holding their own, making sure their clients are being taken care of. I have big positions in those companies as well.

So we’re all, you know, weathering the storm, and uh, you have to do this. There’s nothing else to do except watch with wonder.

Now, you said that it’s hard to call a bottom, but let’s say we continue to see a sell-off. Is there the possibility that the crypto sector, you know, dropping in value could hurt the U.S. economy ultimately, or is it just a degree of magnitude so irrelevant that it’s not going to make much of a difference?

Well, the great news about the crypto economy, and even positions like Bitcoin or Ethereum, these are decentralized holdings. It’s not just the American investor exposed here. Bitcoin is all around the world, and it’s only 880 billion before the correction, which, as you rightly pointed out, is a big nothing burger. And so that’s nothing. I mean, you know, even all of crypto under 2 trillion is still nothing in financial services.

So there’s so much upside to the sector when we do get policy, when we get institutional investors and sovereign wealth involved. Then you’ll start to see real assets. But, you know, if Bitcoin went down another 20%, it wouldn’t really matter because it’s spread around everywhere and most of the holdings are not institutional. For all the excitement about Bitcoin, no institutions own it yet.

And that’s the decision you have to make at a time like this when you’re an investor. I mean, this is an opportunity to say to myself, or anybody, look, if I believe in three years, 36 months, that this there’ll be policy on Bitcoin, do I want to own it after policy comes and all the institutions start buying it? Or do I want to take a chance and live with some volatility now and buy it here at 24, 23, or 20 thousand, whatever it’s going to go to? I don’t know.

But if you believe in Bitcoin, it’s a buying opportunity. But you can’t guarantee that you’re catching the bottom. Nobody catches the bottom; it never works that way.

So, let’s return to that question of policy. The crypto space is expecting to get some clarity. A lot of draft legislation circling in Washington. What are your thoughts on some of the bills that we’re seeing put forward?

Well, I’ve spent a lot of time on the Hill in the last two months. I’ve met with everybody that’s brought a bill forward: Hagerty, Toomey, Lamas. I mean, there’s a lot of interest in this. Here’s what I think is going to happen: they’re going to pick one thing. They’re going to pick one thing and put policy on that. It’s going to be stable coin to start, and the policy there is going to be pretty clear.

All the bills say the same thing. They want total transparency; they want an audit every 30 days; they want no duration more than 12 months on any asset holding up the coin. So that means T-bills on average are going to be seven to eight-month duration and U.S. dollars backing it. And that’s the same kind of rule you’re going to find in a Schwab money market or a Fidelity money market or any money market fund with the benefit of all of these systems once you put policy in place, having the ability to be a payment system.

So I would love to see this happen, and the reason I think you’ll get policymakers on both sides of the aisle backing this one thing after the midterm elections is this guarantees making the U.S. dollar the currency of default in perpetuity. Once you back the U.S. dollar on a stable coin, everybody’s going to want to use it. I’m not going to use the Chinese one; I’m not going to use the Swiss franc. I’d be worried about liquidity. I’m not going to use the euro; the euro is all over the map. I’m certainly not—want nothing to do with Russia, and I’m not going to use the British pound.

I want the U.S. dollar to be a payment system that everybody else will accept around the world like they do for commodities, like oil; it’s priced on the U.S. dollar. So if we get stable coin policy, you talk to any policymaker about this, they get the joke in two seconds. It’s so simple to understand this. Some of the issuers will become FDIC insured; they’ll be like a bank. Others will say, no, I don’t want to be FDIC insured, and we’ll have a plethora of different offerings all around the same policy.

So I can choose. Maybe I’ll put some money into the Fidelity one. I’m saying the same thing I do right now. I put dollars into the Oppenheimer money market; I put money into Schwab’s money market. So the same thing will happen on stable coins. Now we just have to wait for policy.

And right now in USDC, the one that’s holding the buck rock solid, 54 billion in assets, right through the week, right through the correction—no problem with liquidity. I wrote more contracts this week on it. So look, there’s a lot of people interested in making this work. I think we’ll get policy there first.

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