What to expect from DAOs in 2022

Marc LoPresti, Managing Director of The Strategic Funds joins Yahoo Finance to discuss his cryptocurrency outlook for 2022, including why he's become involved with decentralized autonomous organizations (DAOs).

Video Transcript

EMILY MCCORMICK: Adam, cryptocurrencies and blockchain based tech got even bigger in 2021. And decentralized projects are still on the rise in the new year. For the latest, we're welcoming on Marc LoPresti, founder of LoPresti Law Group. Marc, thank you so much for joining us. I first want to start out asking about your expectations for how cryptocurrency regulation in the US is going to be evolving this year. Because we had the House Financial Services Committee hearing on crypto last month, another congressional hearing on stablecoins also in the past month.

What kind of movement are you expecting to see in the new year on the regulatory front?

MARC LOPRESTI: Well we're definitely going to see more regulatory action in 2022 than we did in 2021. The hope is that we see more regulatory action in the form of rulemaking, additional fact finding, and understanding what's going on with this industry as opposed to enforcement. Regulation through enforcement is generally not considered a good thing.

But we can expect under a Biden administration with whom he has put in, certainly with the new head of enforcement at the SEC, who's taken a pretty harsh tone in general in terms of his own enforcement policies, we're going to see some more action not only in the United States, but elsewhere in terms of regulation.

ADAM SHAPIRO: A lot of us get afraid who want to put our toe into crypto investing when we see the volatile swings with Bitcoin, I mean, up over 60,000 today down at 45,000. When will we finally get our chance to go in via ETFs and spot ETFs. Is that going to happen this year?

MARC LOPRESTI: Well that's a great question. And I think most folks would say yes. You already have products like that outside of the United States with spot ETFs. Obviously, we have Bitcoin related ETFs that were passed in the fourth quarter, or approved in the fourth quarter of '21. But we do expect to see spot ETF as it relates to Bitcoin getting approved at some point in time this year. You point out the volatility. That is something that the SEC is most concerned about in voicing why it has hesitated to approve a Bitcoin spot ETFs. It's trying to understand that.

But also market regulation. You saw in the '21 discussion of potentially passing wash sale rules and things like that, taking cues from equity market reg. Because there's a great concern at the SEC and other regulators, frankly, that there is a lot of bad activity going on in terms of trading of Bitcoin and other cryptos.

EMILY MCCORMICK: Marc, switching gears just slightly, I know that you're an investor and an advisor to the Earth Fund DAO and that's the Decentralized Autonomous Organizations. Where do you see DAOs expanding in 2022? Because it seems like between cryptocurrencies, blockchain, Web3, everything seems to be moving in terms of tech in this decentralized direction.

MARC LOPRESTI: Yeah, there's no doubt. DAOs, as well as NFTs, are going to continue to evolve and continue to mature in 2022. The expectation is that as people begin to understand more of what these organizations are, how they can actually be used to put the power of decision making, in terms of the direction not only from a culture perspective, but in terms of deployment of assets, the decision making in the hands in a meaningful way of stakeholders, something really, really exciting and certainly compelled me to want to get more involved with DAOs as you mentioned I did in 2021.

But I think the other thing that you mentioned, which is really one of the main themes that has me and the organizations that I advise excited and continually bullish on crypto in general. You got to break down what that means, of course. But it's this intersection that we're seeing of blockchain, DeFi, Web 3.0, NFTs entering the metaverse. All of the promise that holds particularly around Bitcoin, excuse me, blockchain being used in conjunction with the evolution of decentralized finance. Frictionless payments, putting value in the hands of the consumer, instead of industries, participants that are seen really as toll takers. Yes, please.

ADAM SHAPIRO: A lot of us foolishly dismissed that which we don't understand because it frightens us. I want to get back to the decentralized autonomous organizations and having the power in the hands of the stakeholders. Even the founding fathers of this country didn't give the power to the people. I mean, they protected against that in some respects. Do DAOs, are they susceptible perhaps to mob rule or to if one person has too much of a stake in it, could they sway where the organization is going?

MARC LOPRESTI: So those are great questions. And really, the short answer is depends on how the DAO is established and how the rulemaking of each DAO is established. And this is like the first or second inning of DAO. So that remains to be seen in terms of where a standardization comes into play. But the theory is, and those that are executed in the best way, is that they will be truly decentralized. The stakeholders will have a say. And the way in which the DAO tokens are distributed, and the way that a cap table of a DAO is managed is designed in part to prevent things like mob rule and one particular token holder having the ability to sway the vote in all cases.

It's an evolving space. And it's one that we think we're going to see mature substantially during 2022.

EMILY MCCORMICK: Going back to price action, I'm wondering what are your expectations in terms of the relative performance between some of the biggest cryptocurrencies by market cap, the bitcoins versus Ethereums, versus some of the altcoins that we saw have a really incredible rise in 2021 as well?

MARC LOPRESTI: Yeah sure. Great question. I think the way to start to answer that is we're going to see a continuation of decoupling. Historically speaking, where Bitcoin's fortune went was the fortunes of the rest of the crypto world. You saw that start to change really at the end of the second quarter and through the third and fourth quarter of 2021.

That's a trend that's going to continue, we believe, as you have additional institutional adoption of Bitcoin and other cryptocurrencies as the use cases, again, going back to that DeFi, Web 3.0 story we touched on a minute ago, of other of the top cryptos like Solana, Polkadot, Cardano, Avalanche, Hedera, as their use case becomes more of the story for their value.

Remember, Bitcoin is a store of value. Everything else really is a DeFi story. And what is the use case of those cryptos, of those tokens? So we think we're going to continue-- to answer your question more precisely, we think we are going to continue to see upside trajectory and the price of Bitcoin perhaps not as meteoric as some of the periods during 2021. It's definitely become susceptible to some of the risk off inflationary rotation, rising rate environment rotation into cyclicals, and things of that nature.

Definitely Bitcoin has seen some of that take some of the air out of the balloon if you will. We still see it going to the upside. We see Ethereum outperforming Bitcoin in 2022. Obviously it did substantially over 400% in '21 versus Bitcoin, 66% and change over that same period. And some of the coins that I just mentioned, some of the cryptos I just mentioned, are some of the ones that we're watching really, really carefully. And Ethereum, of course, being the beneficiary of the NFT boom that was one of the main themes of 2021.

EMILY MCCORMICK: Definitely something to keep watching in 2022. Marc LoPresti, founder of LoPresti Law Group, thank you so--