Nexo’s Co-Founder and Managing Partner Antoni Trenchev joins Yahoo Finance Live to discuss the collapse of Silicon Valley Bank, the state of the crypto industry, and regulation.
RACHELLE AKUFFO: Let’s keep the conversation going now on what the fallout from the SVB episode on the crypto industry is. Joining us now is Antoni Trenchev, Nexo’s cofounder and managing partner. So I want to ask you, Antoni, as you’re stepping back and looking at this, what is your big takeaways from what’s been happening over the last 24 hours and perhaps some of the lessons that could be learned from this?
ANTONI TRENCHEV: I think there are very important lessons here, and there’s a few of them. And let me start off by saying I don’t think we are out of the woods yet for a couple of reasons. First of all, we are seeing a flight into Bitcoin and Ethereum because people want to escape some of the smaller caps and some of the stablecoins that are out there. So there is this internal rally within blockchain, the blockchain space, OK?
Then secondly, I think an important lesson is that this particular crisis in crypto and we as an industry have our fair share of sins, especially with the unraveling of last year. That has become clear. But I don’t think this particular crisis, it is the blockchain industry as such to blame. This is like– you know, USDC, they did everything right. They placed dollars in a federally insured bank, the 16th largest, and that created the commotion.
And then the third important takeaway is that obviously the regulators and politicians in the US are not as excited about crypto as we thought they are a few years ago. And I’m saying this euphemistically because what we are seeing is going to have repercussions and second-order effects for a very long time within the industry.
RACHELLE AKUFFO: I mean, we’re still seeing the fallout from FTX as that continues to unravel. But do you think we’ll see the same sort of contagion or the same sort of domino effect after the breakdown now of Signature Bank and SVB as well?
ANTONI TRENCHEV: Well, I would– Signature Bank is a total surprise. From what I heard, even the executives, they found out that Signature is going to be closed out just five minutes before the Fed issued their press release. I do not know what exactly was wrong at Signature Bank. And I’m no fan of conspiracy theories, but it’s obvious right now that the blockchain space has very limited access to fiat and that the banks that were servicing the space are all but gone. There is a few small ones left there.
And this is of some importance for a number of reasons, and I think a notable one is the fact that new money, if it wants to come into the space from US dollars to crypto-native assets, will have a really hard time. So the second-order effects of the shutoffs of the fiat ramps will be felt in the months to come. It really depends on what the regulators have in store for us.
And by the way, this is the reason why, foreseeing this 18 months ago, we started to exit the US market in an orderly fashion and replace that market share with other regions of the globe.
RACHELLE AKUFFO: So then what are Nexo’s customers doing in light of this, and how are you positioning the company?
ANTONI TRENCHEV: Well, I think as a company we are in a very strong position financially and, you know, just as products and services because they are devised by what we see demanded by our clients. And, you know, weaker hands have left the platform during the course of 2022, so we have hardcore fans are the only ones left. What they’re doing right now is they are on the sidelines. They are waiting to see how this plays out and are ready to be deploying capital because, you know, a lot of people– certainly some of the larger whales that I personally am in touch with do see this as a bear-market rally despite the fact that Bitcoin is up, I don’t know, probably 17% on the day.
But as I started, this is a flight to quality from some of the other assets. And, you know, a lot of money on the sideline, that’s for sure. And it will be deployed but I think at slightly lower levels than where we’re currently trading at.
RACHELLE AKUFFO: And so I want to also ask you about Fed reaction to this. Obviously we saw the government step in, making some special exceptions here in terms of backstopping these sorts of accounts. What does that mean for crypto? Once you have that precedent start to be set, is that a good thing for crypto?
ANTONI TRENCHEV: It is a confusing thing for crypto because we had Janet Yellen saying something and all but President Biden this morning contradicting her. And, you know, it is unfortunate because it turns out that regulation and having watchdogs regulate the entities does not stop bad things from happening. I’m talking about the banks because this is always the critique about crypto companies. Oh, they need to be regulated. They need to be managed. They need to be with proper checks and balances.
And what happened with all of that in the sector? Because what we saw is the fact that depositors are getting their money back is not because of stringent risk management by the banks and prudence, but it is because the federal government is stepping in and is guaranteeing everybody’s dollars. So I think that speaks volumes about structural problems. And this will have some effects on the industry, most notably what we talked about, on- and off-ramps.
You know, but one of my favorite things about crypto as such is the ability for startups to fail and fail quickly so that the good actors can succeed. The bad apples can be sorted out. And this is what fosters innovation, I think. And over the past few years, we haven’t seen that possibility in traditional markets. Yes, it’s painful, but I think it’s a cleansing process, which is a net positive.
RACHELLE AKUFFO: A cleansing process, that is definitely a good way to look at it. Antoni Trenchev there, Nexo cofounder and managing partner. Thank you for joining me today.