here to discuss more
steve Sosnick, a chief strategist at interactive brokers,
thank you so much for joining us.
What were some of the takeaways that stuck out to you for this company's results
Morning Acea.
I think the stuff that's stuck out at me is
this company was wildly profitable when Crypto was in its heyday
and it's amazing how, even though I wouldn't count, Crypto is out,
we're basically just below year lows.
Um, the company turned from profitable to unprofitable really quickly.
Um That is a bad sign, especially in a market like the one we're in where Mark,
where investors are punishing
growth stocks that are no longer growing.
That's that's a bad combination right now.
Yeah.
And one of the more alarming areas here is the new disclosures of coin bases,
quarterly results, warning about bankruptcy risks,
implying basically that customers would not be able to
access their funds if coin based did declare bankruptcy.
How do you think this language impacts investor confidence in the company
and given what you said about going from profitable to not profitable really quick,
Do you think these fears are overblown at all?
Um Some yes, some no.
And to a certain extent,
the sec requires all sort of boilerplate
language about disclosing all kinds of risks.
Um,
you know, realistically any company can go bankrupt,
but so I don't want to go too crazy there.
I'm not gonna, I'm not going to come on tv and say, you know,
coin bases and immediate bankruptcy risk.
But the other problem is that,
um
this was, this was an unwelcome reminder
that if you hold assets in an unregulated,
unregulated security in an
unregulated forum, you don't have the protections that you have when you hold
um your securities in a regulated environment.
This is the flip side of deregulation. It's great when it's working.
It's scary when it's not, you know,
the difference is if you're at a if you're a broker that's that's part of S.
I. P. C. You're protected up to $500,000.
Small investors, you know, didn't really lose anything
in the Bear stearns and Lehman bankruptcy
because of the S. I. P. C. Protections large investors did by the way.
But this is the reminder that you're playing in a different,
you're in a different swimming pool here.
It's a really good point.
And given that coin based strongly relies on
the performance of crypto assets for income.
Do you see the company returning to profitability
anytime soon without diversifying its revenue streams?
I do also want to bring into the conversation the fact that we
know the federal government has been taking a look at crypto currency,
potentially signaling that somewhere down the road
we could see a digital dollar or other digital currencies that would
in theory be housed on a platform like a coin base.
Well that that's really where that's really what you have
to be hoping for if it's the longer term,
what they've shown you is they're very lever to the crypto cycle.
Um and to the level of cryptocurrencies and interest in cryptocurrencies um when,
when the business was booming, they were booming now that the business is fading,
they're fading.
Um
You know, my analogy here is
um we're at a point now in crypto where I analogize
Blockchain to the inter to the early days of the internet,
all the all the most wild predictions about what the internet
could do for you have actually come true and been exceeded.
And so Blockchain may have that possibility and
you talk about digital dollars etcetera etcetera.
The problem is,
are the current crop of Cryptocurrency is the best way to monetize that.
And going back to that same analogy,
the original crop of of Internet companies turned out
to be a lousy way to monetize that.
Um they almost all got clobbered in 2000
and
you know, and the few that survived the amazon did very well,
but a lot of other ones never fully recovered and
a lot of the best ones came about after that.
So it's hard to say how that weather coin based can pivot in that manner,
whether they're an amazon or whether they're,
you know, one of the various internet companies that got left behind.
It's a really fascinating perspective to make that comparison.
I also want to talk about the price of
Bitcoin and other crypto is plunging during this crash
and digital assets that had already wiped away $600
billion dollars in market cap in just a week,
What do you make of the recent declines generally?
Unfortunately, um, you know, what goes, there's a certain amount of gravity here,
You know, the moves that we saw in crypto, the adoption of it.
Um, the speed at which it rose, um, make it more susceptible on the downside.
You know, I was doing some work and you know, around the time that covid hit.
Um, you know, we're,
since then we're still up about five fold four or fivefold in Bitcoins since then.
So that's a,
that's a testament to the amount of money that flowed into the system from the Fed,
the fiscal stimulus, I'm going to call it boredom from people who are home, you know,
trading without as much to do because they were working from home or,
or didn't have a ton of leisure all the,
and then then it becomes self fulfilling once it starts moving, people jump in.
The problem is when you have a situation like that,
it tends to get self fulfilling on the way down to.
And that's why I think we have some work to do before we resolve this.
The, the early investors, the whales are still doing phenomenally.
But unfortunately, a lot of the newer people who came into the game in 2021 and 2022,
uh, you know, are really looking at some headwinds here
and so much for the digital dollar idea,
the NASDAQ and crypto have been treating in lockstep
for the past few months.
Do you foresee a point when the two markets
decouple from the performance of the broader equities market,
and what is your outlook of the future of Kryptos market?
Um Well,
for better or worse,
we've we've proven the premise that Crypto is just another risk asset,
at least for now, and you know, so that's why it's following the NASDAQ,
which is sort of the proxy for the biggest group of risk assets.
Um and and now we're seeing it decline, we're seeing a decline in lockstep.
Um the problem we get into here is that um we just we just can't
separate ourselves from that and going forward,
it kind of goes back to what I'm saying is,
you know, some of the Kryptos will be, some Kryptos may turn out to be real winners,
but it may not be the ones we expect.
And the other question, you know, what happens to Blockchain versus crypto?
I think we have to separate them out.
I think they've been lumped together,
but I think we need to take a different perspective and figure
out what the Blockchain winners are not necessarily the crypto winners.
So good to have your perspective on the show that steve Sosnick,
chief strategist at interactive brokers, Thanks so much