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JMP Securities Director of Financial Technology Research Devin Ryan joins Yahoo Finance Live to discuss the collapse of the FTX-Binance deal and ensuing crypto market collapse, what’s the next for investors,

Video Transcript

– All right. Well, that FTX collapse putting pressure on crypto-related stocks as well. Both Coinbase and Robinhood, which offer crypto on their platforms, are down over the last five days, with Robinhood shares sinking, as you can see there, about 7%. Well, here to discuss the outlook for those Bitcoin-related companies is Devin Ryan, director of financial technology research at JMP Securities, a Citizens company. Welcome back to the show. So for a lot of people who have their funds stuck on some of these platforms, how much more pain is ahead?

DEVIN RYAN: I think you have to separate what’s going on in the broader industry and some of the stronger players in the space. So there’s no doubt this is a huge black mark for the industry. And there’s still a heck of a lot of uncertainty in terms of where we go from here, where all the money trail goes and kind of the tangled web. And so that creates a lot of I think distrust for the broader industry.

And it’s unfortunate because there are, in our opinion, a lot of good players, whether it be crypto assets and their protocols or companies that are providing the infrastructure for the space. But you mentioned a couple, Coinbase and Robinhood. Coinbase is a regulated public company in the US. They have $5.6 billion of liquid assets. They hold their customer assets one for one.

And so the bank run that happened with FTX and maybe some of the other impropriety, in our opinion, is really not something that pertains to a firm like Coinbase. They will be affected by this. So we’re not being dismissive that– this hurts adoption. People likely pull money off the platform. But they have a lot of liquidity. And so we’re not, from a long-term perspective, that concerned, particularly when you look at– I covered the investment banks through the financial crisis. And firms like Goldman Sachs and JPMorgan, they took market share, and they came back much stronger.

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But you have to get on the other side of that first. And we’re not there yet. So there’s going be a lot of uncertainty. Robinhood is a different situation. SBF, Sam Bankman-Fried, he owned over 7% of Robinhood shares. 55 million shares. So there’s pressure there just because there’s uncertainty around what happens with their shares. Fundamentally, they’re very little affected by what’s going on here, in our opinion. So we think the move in Robinhood is a pretty big overreaction.

– That’s interesting there. And Devin, that really explains then why the ratings that you have on these stocks. You have an outperform rating on Coinbase. $155 price target. You mentioned the impact that this could potentially have just in terms of adoption. I would think that that would be a huge risk then when we talk about the impact that could have on Coinbase. It doesn’t seem like you agree. Why is that?

DEVIN RYAN: Yeah. So I think you have to take a step back and talk about the actual reason this industry exists and whether you believe that the blockchain technology and some of the crypto assets that have been created actually have real utility and that will continue to evolve. And that’s our position here. Now, we can all also probably agree that there’s a lot of excess in the industry over the past couple of years.

There’s nearly 20,000 cryptocurrencies. I’m on record saying that I think only a couple percent of those actually have real utility and real opportunity. But that’s really what you need to have, only a couple of percent, for this to be a thriving industry. And so in our opinion, blockchain technology is disruptive and will change a lot of aspects of how business is done over the long term.

And so Coinbase is a major on ramp an off ramp into that. And so in the very near term, in my opinion, people are probably selling their crypto assets and moving to the sidelines on the retail side. On the institutional side, Coinbase will probably actually consolidate shares very quickly here because people still need a custodian if they’re not completely out of the industry. And now it’s very obvious that Coinbase is where there’s safety and soundness, in our opinion.

But the long term is really about the blockchain technology. And this will get people back to the serious stuff around building real use cases. And happy to talk about some of those. But we are still very optimistic on that future for the industry.

– And Devin, we have been hearing a lot of people saying, look, this is a real wake up call to remind people why they started investing in things like decentralized finance in the first place, because you are going to have bad actors, whether it’s in traditional finance or crypto as well. But when this all shakes out, what do you think the industry is going to look like?

DEVIN RYAN: Yeah. So it’s a great question. And again, we’re kind of right in the middle of it right now. So I think things could even get worse before they get better. But it’s very clear you need more transparency. And one of the benefits of blockchain technology is the transparency that it brings. But the problems that are happening right now are with kind of traditional financial players.

These are firms– we’ve seen it in the past where companies take too much leverage or they’re not good risk managers or maybe even in this case there being some fraudulent activity that’s been going on. And so that means that there needs to be more scrutiny and potentially more regulation around the centralized players in the industry. But that also doesn’t necessarily mean that what’s happening in the decentralized part of the industry is wrong.

But what I do think it will do is, again, bring people back to the serious part of the industry and take away some of this kind of speculative excess that’s already, to be honest, been coming out of the market over the last year here. But I think this only further kind of distinguishes between firms that are building real platforms on the blockchain with real use cases versus people that are going in and buying and selling without knowing very much about what they’re buying and selling.

And I think we really are moving to something that’s actually probably in the long run a good more fundamental market. But it’s going to be messy in the near term we just don’t know where the contagion ends here. And sometimes that leads to more selling beyond anything that you would say is fundamental.

– Yeah. And Devin, to that end, you mentioned, obviously, before that it could get worse before it gets better. I guess the question that everyone wants to know the answer to is how much worse. Can you give us some general idea of what we could potentially see to the downside.?

DEVIN RYAN: Yeah. Well, I think you can look at other times in history and other market crises, if you will. I covered, again, the investment banks through the financial crisis. There’s been other examples of fraud. The size and scale of this, in our opinion, is much less than any type of financial crisis contagion. There’s billions of dollars in assets and potential losses. But it’s also spread amongst many, many people.

Where I think the contagion is is you have bankruptcies, then you have assets, and you have crypto assets that potentially have to be sold in bankruptcy processes. And when you have a market where everyone knows there’s a lot of sellers, buyers typically wait. And so things absolutely can get worse from both a bankruptcy perspective as there’s contagion there, but also crypto assets seeing pressure of selling without buying.

But the size and scale of this, in our opinion, is much, much smaller than other financial crises where you’re talking about the entire financial system with many, many times leverage. This is billions of dollars, which is a lot of money, but it’s not as widespread as what we’ve seen in some other instances in the past.