Crypto crash ‘should be a wakeup call’ for platforms like Coinbase, analyst says

Dan Dolev, Mizuho Senior Financial Technology Analyst, joins Yahoo Finance Live to discuss Sam Bankman-Fried stepping down from FTX as the company’s CEO following bankruptcy reports, the state of the crypto market, and the outlook for investors.

Video Transcript


BRAD SMITH: Everyone, let's talk more about the crypto chaos. Dan Dolev, Mizuho Americas managing director and senior fintech analyst. Dan, just encapsulate this week for us. What has been continuing to play out in front of your eyes, especially with the newest and the latest out this morning? That FTX is going to be filing for chapter 11 bankruptcy, plus SBF stepping down.

DAN DOLEV: So I want to say like, you know, nothing for me to do on Singles Day so sorry about that. But beyond that, talk about crypto.

I think this week kind of tells us or anyone that didn't think that, you know, those tokens are worth pretty much nothing, now realize that. And I think it's gonna take time.

I'm thinking whether this is the Bear Stearns moment or the Lehman moment, if you go back to 2008, of crypto. And I think we're somewhere in between that. Because if you didn't wake up to Luna, and you didn't wake up to Three Arrows, this should be a wake up call that, you know, what you thought was worth something is actually not worth anything. And things change overnight. So I think that's a big, big, big red flag for Coinbase, from a stock perspective.

BRIAN SOZZI: Dan, it's been a long week. I just got your joke. For me, you know, that's what I'm rolling with. Nothing on here.

DAN DOLEV: Oh, it took a while. It took awhile.

BRIAN SOZZI: It's been a long week just covering all this crypto stuff, as you can imagine. But look, what do you think the fallout here means for crypto as a payment function?

DAN DOLEV: I think it means that actually not crypto, but a stable US dollar is actually the third to payments in crypto. I don't think Bitcoin is the answer. I don't think any of these tokens is the answer.

So I think basically it takes-- what at least it does is it tells us where crypto is not going to. It doesn't tell us where crypto is headed to. But it tells us where crypto is not going to, which means that these tokens are basically-- a lot of them, most of them are gonna expire worthless at the end of the day. And the trading volume is gonna come down because the users are not coming back anytime soon once they get burned. So that's why it's bad news for Coinbase.

So I think that-- if you think about the gospel a bit, I really believe in the US dollar, you know, digital coin, whether it's a circle minted or it's a government minted. That's the answer because it basically puts the US dollar on the blockchain. And then you can transact internationally. That's probably where it's headed towards. But it's gonna take, you know, some time.

BRAD SMITH: How quickly do regulators need to act when it comes to crypto?

DAN DOLEV: Well, there's, what, still about a trillion dollars, I think, of so-called market cap on this. I think-- I think very-- I think, fairly quickly because what's gonna-- I think there's a lot of money that's still tied to a lot of these tokens. And if, you know, God forbid, we're gonna see more of these things than a lot of people are going to lose a lot of money. So I think there's-- there definitely needs to be regulatory action around that and clarity about what's-- you know, what are assets, what are not assets. Those are all things that need to be resolved.

BRIAN SOZZI: Dan, as you think through this, over the next couple of days, what should investors be prepared for? What should they be on the lookout for?

DAN DOLEV: I think-- and again, my own opinion is that there's going to be worries about, you know even-- you know, I mean, right now Bitcoin-- you're seeing what happens with Bitcoin, right? Bitcoin is kind of the bellwether for everything. So I think what investors should be prepared for is like, I-- actually, we did some work. This is actually sort of proprietary work that we've done.

We've done work on the Coinbase platform. The average cost basis for Bitcoin is about $20,000. So we've done-- we've run two separate surveys, $20,000. We're now at, I'm seeing on the screen, less than $17,000, which means that more than half the people, again, according to our work, are basically losing money, right? They've lost like 15% on average.

And what that means is that at what point-- and $10,000 is kind of that sort of point, that another big inflection point where people are making decisions. Should I stay? Or should I, you know, flight or-- fight or flight?

And I think that this range between $10 and $20,000 is a very dangerous range because a lot of people are saying, if it doesn't go back to when you were at the money anytime soon, I think a lot of people are gonna basically just give up.

So I think I would watch the price of Bitcoin very carefully. And just knowing that $20,000 is a benchmark. That's a very important benchmark because a lot of people are invested at $20,000. Again, according to our survey here.

BRAD SMITH: OK. And so for all of the tertiary players that are already publicly traded and are relying on people to continue to flow funds into crypto, whether that's a Coinbase and what we've been tracking with their stock, whether that's a Robinhood. How does this impact them?

DAN DOLEV: You mean, in terms of like those companies that are doing that? So I'm very cautious on Coinbase, right? Because it-- hopefully that answers your question. I'm very cautious on Coinbase because think about how they make money. They make money off of commissions.

So if you stop coming in and trading, right? There's disinterest or if you're not trading as much, they don't make money. So they're very vulnerable to disinterest in crypto, right?

The worst thing that can happen to them is that people just stop-- that people just lose interest in this category. And when people lose interest in a category, whether they sit on these tokens or they sell them-- well, if they sell them they're gonna get sort of a one time, hooray, of volumes. But let's say if they don't come back or if they sit on these, and just say like, I'm not playing this for the next five years, it's pretty bad for them, right? Because that's how they make money.

For Robinhood, it's not as bad as-- it's not as bad of a problem because only like 14% of their revenue comes from those tokens. Remember, Robinhood is mostly a broker. They have, you know, equities, they have options. Much more diversified. And they don't really rely on those commissions to make money. So it's a big problem for Coinbase. It's not as big of an issue for Robinhood, in my opinion.

BRIAN SOZZI: Dan, real quickly before we let you go, on Coinbase. Given what we are seeing in crypto, how is their liquidity situation?

DAN DOLEV: So I think they're fine. Again, from what we've seen, they're fine. And I think went-- they were very outspoken. They don't have any exposure to-- or any real exposure to FTX. I think from a liquidity perspective with concerns heading into the third quarter, but I think those concerns were resolved.

So right now I think their liquidity-- the liquidity is not their problem. Their problem is that-- just the way they make money is reliant on these people-- on people continuing to trade these tokens. And when people stop trading those tokens, they don't make money. And their cost base is still very high. So that's their problem. Not the-- not the liquidity right now.

BRIAN SOZZI: Got it. All right, Dan Dolev, Mizuho Americas managing director and senior fintech analyst. Always good to talk to you. Have a great weekend.

DAN DOLEV: My pleasure.