What we need for crypto to rally

Inside this episode:
  • [01:50]Why the FTX implosion is like China's "shadow banking" system
  • [06:58]The "no-brainer" regulation needed in the crypto industry
  • [10:35]Crypto won't rally until this happens
  • [15:28]What has Frank Holmes excited about the metaverse and NFTs
  • [31:00]Expect further pain in crypto ahead
Frank Curzio
By Frank Curzio Frank Curzio, founder and CEO of Curzio Research, is one of America’s most respected stock experts. His research is regularly featured on media outlets like CNBC’s Kudlow Report, The Call, CNN Radio, ABC News, and Fox Business News. His weekly Wall Street Unplugged podcast—ranked the No. 1 “most listened-to” financial podcast on iTunes—has been downloaded over 9 million times.

Frank Holmes, CEO and chief investment officer of U.S. Global Investors and executive chairman of HIVE Blockchain Technologies (HIVE), joins me to discuss the crypto markets. 

The big story in crypto is the collapse of FTX, one of the world’s largest crypto exchanges. Holmes breaks down the impact on the industry… and how FTX’s business practices remind him of “shadow banking” in China. He shares the one question that helped him avoid massive losses when crypto lender Celsius went bankrupt… the “no-brainer” piece of crypto regulation that’s needed now… and what we need to see for crypto to rally.

Holmes also explains what has him excited about the metaverse and NFTs… why green energy is the future of crypto mining… and why crypto conferences are still seeing such strong demand, despite sinking prices for cryptocurrencies.

(Holmes will soon be hosting his own virtual crypto conference on November 30, which I’ll be participating in. Stay tuned for more details…)

He also explains why he expects the coming recession to last a while.

Transcript

Wall Street Unplugged | 970

What we need for crypto to rally

Announcer: Wall Street Unplugged looks beyond the regular headlines heard on mainstream financial media to bring you unscripted interviews and breaking commentary direct from Wall Street right to you on main street.

Frank Curzio: How is it going out there? It’s November 10th. I’m Frank Curzio, host of the Wall Street Unplugged podcast, where break the headlines and tell you what’s really moving these markets. So, a lot going on these days, whether it’s election, the market coming down again and especially the downfall in crypto, where one of the largest crypto exchanges, FTX is pretty much in liquidation mode. So, this comes after several other companies, mostly crypto lenders had the liquidity a few months ago, but I wanted to bring in an industry inside to discuss FTX, and his name, which you should be familiar with, a good friend of mine is Frank Holmes, executive chair of crypto miner HIVE Blockchain Technologies. Frank, how is it going man?

Frank Holmes: Outstanding in a bear market?

Frank Curzio: I love the optimism. I love the optimism. And I wanted to ask you right off the bat with FTX. To me, you know that we both crypto enthusiasts, we believe in long-term within crypto and Bitcoin and Ethereum, but this hurt. I didn’t see this coming. I don’t think a lot of people saw this coming. This comes on the heels of what happened; we saw with the Celsius and Voyagers and things like that. And they are a very big name and how fast they’re liquidating. What does this mean for the crypto market? Does this change your thesis long-term at all? And how did you feel about this? Because everyone that I talked to, even the largest place in the industry who are reporting to their people now, telling them that, “We don’t have exposure.” Or, how much exposure they have to FTX. I’m very surprised and very pissed off at what’s going on right now.

Frank Holmes: It’s something that happens when you have a credit crisis that’s happening in the crypto space, it’s actually much more evident. We have something similar in China, and they call them shadow banking. And asset managers looking for higher yield when interest rates were so low, all of a sudden, people were taking deposits and providing these higher yields, and that’s what we saw with Celsius and Voyager. Then, you had some of these hedge funds, triple trouble should have been called and three point trouble, but you saw these hedge funds come in, and they were basically funding for quasi-banking. Then, you had predatory lending that was taking place from San Francisco funds, you had it in New York.

Frank Holmes: So, it was interesting to observe this shadow banking is unregulated, and the big mistake is that when these people function in their metaverse, like where’s monopoly money, and they were predominantly taking from crypto people that made crypto gains and rolling it into earning a yield, they started reaching out into the real world, our world and taking money from savers and making FDIC insurance claims like Voyager had and rates were 1% and all of a sudden we can give you 8 to 12. And that is just problematic unless Bitcoin and Ethereum and all these other coins keep going up in value.

Frank Holmes: So, you have a real crisis of unlike 2008, when brokers were leveraged 33 to one and all they needed was a 3% volatility and it wiped out their capital base. We’re talking about a hundred to one, like long-term capital was. But long-term capital only took institutional money. The issue here is they reached across, and they started taking retail money. I remember being pushed to give our coins to Celsius, and I met with the CEO, charming guy, et cetera, but the counterparty risk was just too great. And I said I’d rather accelerate Ethereum and build our exhaust than turn around and try to grind out this 8% to 12% yield, from where I couldn’t figure out where they’re making it from. And then what was my collateral, my risk.

Frank Holmes: So, we declined going down that path. But Frank, whenever you have this shadow banking crisis, it takes 12 months, maybe 14 months before it totally unwinds. There’s lawsuits, there’s regulatory pronouncements, et cetera. And so what happened in April and May seemed to have a bottom short-term in June. And now, we had a rally, and now it’s coming through. This counterparty risk, we just don’t know. So, that’s another reason why we had a high pulling back our expansions. Want to be really cautious and careful, and then to add to it, which is really bizarre since mid-September, the difficulty that is more people are mining Bitcoin, that really shocked me that it jumped 20%. So, that means you’re making 20% less profits. So, you have rising, falling crypto prices. Rising difficulty means less coins are in mining and in many places across America and Europe, the cost of electricity went through the roof.

Frank Curzio: So, for me, the big surprise here, and I understand the liquidity coming out of the market, it’s going to hurt a lot of risky industries is this two, it’s kind of twofold. One, I’m surprised this happened because Bitcoin was stable holding 20,000, maybe, obviously, 18,000, 21,000. It seemed like the institutions were coming in. You saw the BlackRock deal with Coinbase. You saw Google deal with Coinbase. You saw Fidelity. I mean, really pushing this to be an allocation to 401ks. So, I felt like if it was going to happen, it should happen a couple months ago. Where I’m surprised where Bitcoin for the first time, I think in almost ever has been less volatile than the overall markets. And that was one of the things, even Fidelity took a study of why investors and even institutions don’t want to go to Bitcoin because of the volatility, so I thought that was a huge positive.

Frank Curzio: So, on that front, it’s surprising that that happened. The second front is what do we do here about regulation? When does the regulation going to come out, where we could see everything behind these companies?

Frank Curzio: This is supposed to be a staple company. This is one of the largest firms, this guy, again, 30 years old, arrogant all over the place. But you’re talking about investors like Sequoia Capital, you’re talking about Tiger Global, Paul Tudor Jones, Tom Brady, this guy just bought the 19 year-deal with the arena, Miami Arena for Miami Heat. And the investors behind this third point are huge, are massive. And it seems like they didn’t even know what was going on. So, how do we prevent this, and when is a regulation coming to this industry, where you have to have that confidence not just for institutions, but individual investors to know when they’re investing in something that it’s real, and then not leverage behind the scenes where, you know, you have no idea what’s going on?

Frank Holmes: Maybe there’s a turf war between the regulators who gets to regulate Bitcoin and digital assets and versus the SCC and that’s happened before. So, I don’t know what’s happening in the beltway, but I do know that Gensler is doing everything to try to push for regulations and particular to go and regulate exchanges because that’s where the onboarding takes place, and anyone that hangs themself out to be a quasi, what do you call it, shadow banker, they should be regulated. And there’s no doubt taking deposits from people promising a higher yield is very, very risky.

Frank Holmes: I try to give a simple example, Frank. If I give you a gold coin and put on the table, it does nothing. It’s inert, and if I put $100 bill on the table, it’s just $100 bill. But once I start providing you a yield on that gold coin or that $100 bill in a money fund, it’s a security, and therefore it should be regulated. And what’s happened here is that the issue is what is a security, what is not? And this debate takes place. To me, it’s really quite simple. And I think that there has to be regulation, especially when it comes to exchanges because that’s where the onboarding and off boarding ramp is and freezing up people’s asses like we saw with Celsius, et cetera.

Frank Holmes: So, all I know is that in 2008, we had ushered in fast D 157 marked to market interpretation, and this caused Bear Stearns to be bankrupt before the first quarter. Six months later, Lehman goes bankrupt. So, do you think of that process. So, we had Solana these coins blow up, Luna coin blows up, Voyager, Celsius, and in that timeframe add six months, and then the other collateral damage starts coming through the system.

Frank Holmes: That’s what we’re living with. And the scary part is, we don’t know who’s next. And I’ve been saying this for our strategy meetings at U.S. Global and HIVE that we just have to be very, very cautious and pull back on expansion, pull back on everything until this settles.

Frank Curzio: Now the good news, and I think you’ll agree with this, I speak to a lot of entrepreneurs in this industry that have companies that are amazing, that are great. I see this is where all the innovation is coming from. You could say AI is… We have extensions of AI. AI is not a new concept, but just the amount of innovation and creativity coming out of this space to me is unbelievable. How do we get to that point where, not just on the regulation front, but how do we get to trust this industry again? Because like you said… I understand, and I’ve been through the liquidity crisis as well and been through a lot as well. I’ve been doing this for 30 years. When I saw everything blow up and crypto’s been going down for a while now, and then you see three months ago a lot of it coming out of lending, and then you see the stabilization, you figure, “Okay, a lot is done.” But how do we get that confidence back? Because I’m looking at this.

Frank Curzio: Well, wow, this is a real surprise to even the people who had dialed in this industry and how do you get people in good projects? Because what you really want to do at industries like this, just like dot com is when that crashes, the guys who survive are the kings. We thought FTX was one of them because they’re going out there trying to purchase everyone. They’re making deals with everybody, BlockFi. I’d go through 10, 15 different deals with them and bailing out. But where do we get to the place where, okay, we know we’re close to being done with this, especially if it’s a credit crisis and if it’s going to continue to raise rates. Is this going to continue even longer? Because I think that would ruin the confidence of people really coming into this industry, especially newcomers who every time they want to come in, they see another major firm blow up.

Frank Holmes: It is no doubt, Frank, and I think you’ve been through these experiences before in these cycles and this is a credit crisis. We’ve had rising interest rates and there’s been no 10-day low. We’ve got gold jump above the 50-day moving average, and then falls below, and then spiked up again this week above the 50-day moving average. But what’s interesting is that we’ve not had a 10-day low in two, five, and 10-year government body yields. And you’re going to have to get the bond yields dropping, and all of a sudden, trending down before we’re going to have a sustainable rally in the stock market or gold or crypto. And right, now it’s still… We talked earlier that it’s rising interest rates and embedded inflation is definitely significant with a lot of climate change policies. How that’s embedded inflation? Paul said that a lot of the infrastructure spending is very inflationary.

Frank Holmes: So, I saw what happened in Canada. They put about 25% carbon tax, and immediately at the gas pump to any business, there’s a 25% gross margin is taken away from you. And so, where is this all going? We’re going into a very slow recession. Crypto is ahead of the game. Crypto is saying to you that this is a severe credit crisis. I heard that when Twitter, the acquisition by Elon Musk ran into big financial borrowing problems. So, you’re seeing the capital is seizing up for, doesn’t matter if it’s Twitter, we’re seeing that the market punishes.

Frank Holmes: I just wrote about Meta, which used to be Facebook spending billions of dollars of the free cash flow on the new Metaverse that hasn’t kicked in yet. And because the free cash flow drops dramatically, the stock drops 25% overnight, no longer is it a really a FAANG stock, nor is it in the universe of the CEO. Zuckerburg loses $100 billion of paper valuation. So, we are in a real serious credit crisis, and it’s slow. Even though it’s the fastest rise in interest rates, the money that was put in the economy and after COVID, it is still going through that churn.

Frank Holmes: But I look at Jets, and Jets to me is a really fascinating leading indicator. And as you remember during COVID, it fell and then all of a sudden the volume went from 40,000 a day to 400,000 shares a day to 800,000 shares a day. It goes from $11 to $28. So, as the vaccine starts growing out, Jets is going up, up and up. But the airline stocks are losing money by the tune of billions of dollars a month. And now, they’ve turned profitable, but Jets is down. And there’s a big pricing power that’s in the airlines because they have less pilots than they have real trade tremendous pricing power for a ticket.

Frank Holmes: You think you could buy a ticket six months old and get a discount? There’s no discount. It’s expensive. And so, what we’re seeing is that it’s warning you that there’s a slowdown coming and even though people are paying big tickets now, everyone’s going to hotels and tourism, JetBlue buys Spirit because it wants to have all that tourists travel, that business tourist traveler on the east coast, it doesn’t matter. The market is a discounting mechanism, and I really love Jets because it’s so liquid, and it’s giving you a good feel for where the future is. And by the time the bad news starts coming out, Jets will be turning up.

Frank Curzio: And by the way, for those you don’t know this our time hearing about Frank. If you’re a long-term, surely you know that Frank and I are good friends on the podcast a lot. But you created the Jets ETF. It’s the largest ETF that focused on airlines for U.S. Global. You mentioned something in the middle of that, which is the metaverse. And two weeks ago, I wanted to have you on to talk about that because I think there’s just this misconception about the metaverse and how it’s nonsense because of their watching Meta as that test case. And for me being in this industry and seeing the projects that are going on with open metaverse is, owning your own content and just unleashing creativity where people, whatever they build, whatever they could create and they could sell their own, on their own where it’s not a one-way street to Facebook, Roblox, and things like that.

Frank Curzio: What are your thoughts on the metaverse? Is this a trend that… Again, everyone knows Facebook, they have how many billions of users? 3 billion plus? But to me that’s not the definite, that’s a virtual platform. And I wanted to get your thoughts, which was what this interview was supposed to be about before FTX really blew up. So, I’m glad you came on, but talk a little about the metaverse and what you’re doing there because it seemed like you were optimistic on it. I want to hear your thought, your honest thoughts about it. Do you think it’s for real? Do you think it’s going to happen? How quickly? And let’s hear about it.

Frank Holmes: I think it’s early, and the article that I wrote a couple weeks ago was trying walk people through that. There was a tablet before… There was an iPad, and the tablet was successful for moments and then failed. And so, some of this technology, like the metaverse, is real. The kids that are doing gaming all over the world and virtual reality and the games they play; it’s for real. But I think is very early, and that’s what he’s living with: Being early. But what’s interesting is that the bottom of the last crypto cycle, we had a big bull 2017, a bear 2018, and the bottom took place just after JP Morgan, which was talking negative, all of a sudden started talking positive.

Frank Holmes: They came with their stable coin and Facebook announced their own digital currency, their token. And immediately, you saw the G20 finance business do a pilot. I mean, just a bang, bang, bang, bang, and it was just shocking to see how frightful they were of the significance of Facebook’s too big in followers all over the world and having a new currency, a new order. So, he was early there and got punched out. And so, maybe when he went to pivot, he should have just got a little slower in his pivot.

Frank Curzio: So, let’s change tunes here because I’m glad you’re talking about crypto, and maybe one last question on crypto before we go. What do you say to investors right now who are losing confidence in this industry? An industry that gain with high technologies, these guys done incredible things. How do you tell them to-

Frank Holmes: No. I don’t think so. I don’t think so. I think that it’ll be a pulse with these conferences, Frank. They’re still sold out, and people spending a thousand dollars a ticket. But consensus, it is like going to the country club, and you just can’t walk into a country club. You have to pay $100,000 to join and you join. You have to go through this incredible process to be able to join. Consensus is that way. You can’t come up and say, “Hey, I want to go to your conference, and I’ll give you $2,000. Sorry, not invited.” Only those who are proof of stakes and those in Ethereum ecosystem. And it’s really fascinating. They’re sold out. So, the Bitcoin, I was recently in Amsterdam, and it’s the first time they did one in Europe, and they had 3000 people, 3000. Bitcoin this time last year was 60,000. It’s now 20,000. Can you imagine gold going from down 60%? Do you think anyone would come out to a Cambridge Gold conference? No one. No one. And it’s free. But they’re here, they’re still spending the money.

Frank Holmes: So, it doesn’t matter if it’s coders coming together. It doesn’t matter if there’s a lot of still capital going into this sector, into the blockchain and how the new sectors will evolve. The metaverse gaming, blockchain gaming. So, I don’t think it’s going to go away. I just think it’s going through a real tough cycle where it was over leveraged, overpromised. In 2018, it was all they call the shit coins, the tokens that came out, and they were all hype, hype, hype. So, they closed those down, and then we come out, and now it was leveraged. Let me earn interest, I’ll give you interest in your money. Interesting your money. That cycle’s gone. So, I think the new cycle will be stronger and better than ever. Long as you have the cash and reserves as a mining company to weather that storm. Most of our peers have leveraged up to here 12%, 18% interest payments and their equipment, so all their ASIC chips.

Frank Holmes: So, some guys are turning around, one of the crypto mining companies are telling one of the lenders, “We’re not going to pay you right now but we’re going to keep the machines. You can’t get them back because we got to make money with them.” Just whoever heard of that that’s going on. And so, you’re seeing that all the expansion in Texas, which is supposed to be a gigawatt, that’s gone. It’s history. You’re seeing now pricing of electricity in Georgia, and these other states popping much higher. I think electricity in Texas, it be worth hedged out, is now running hedge 7 cents a kilowatt. Well, you can only make 9 cents if you have the latest S19 Pro’s per kilowatt. So, you have a very little margin. So, I think that you make sure you have lots of cash, you watch your cash very importantly here, and don’t have any serious leverage where these creditors can come in to try to be predatory on your assets.

Frank Curzio: Yeah, and I was going to switch tunes, but I like where this is going. And I guess a couple more questions here, which I think people will be interested in. What do you think is going to be the biggest markets within crypto going forward? Do you think DeFi, we’re seeing you take a step back where people are like, “Okay, we need some kind of centralization, some kind of people washing, but is it NFTs, metaverse, Dow? Where do you see the huge growth potential in this market that’s not yet realized?

Frank Holmes: It some really fasting things like that I see in the NFT space. Friends and investments we have is in… I have joined French with the Hockey Hall of Fame, and in Canada, and NHL players, and what they create arts, and they create an identity in an NFT, they create a value.

Frank Holmes: Another interesting one that I’ve seen is where the NFT would be backed by gold, but each NFT would have a smart contract would give you the number on it, and it would be iterative gold art. So, they would be using artificial intelligence. So, each piece would be different, but it would have an intrinsic value of gold behind it. So, you know that you always, now the art. It can be worth more if someone really likes that iterate piece of artificial intelligence art and each piece is different.

Frank Holmes: I think that type of stuff’s really cool, but you would know that you always have some type of an intrinsic value based off the price of gold that supports it. And then, there’s the artistic appeal behind it and the ability to trade 24/7 is where NFTs are going to go all over the world just like Bitcoin. So, I think there’s some really fascinating opportunities in that space.

Frank Curzio: No, it makes a lot of sense. So, all right. So, let me give you a chance to talk about it a little bit about HIVE, which any new investors and everything. I know you guys focus on really the green portion of that, which I know you’ve gotten booed in the past because you thought that should be different with the Bitcoin here and things like that, but yeah, talk about some of the things that you do with HIVE because we are seeing a lot of things really get nailed here, and hopefully, you guys watching this on YouTube with the hat that you just put on, which is awesome, which I love. But like-

Frank Holmes: For all your listeners, they reach out to you and reach out,, and give us their contact, and we’ll get them a high hat with a Gucci bee on it as a whole. But it’s really our own bumblebee, and when I try to tell peoples to remember I got the right side, “Hold on, hold on for dear life with this volatility.” That’s all I can share with you is that we run a conservative company. I’ve been through many crises. We have a great team. We made a lot of money with Ethereum, but we never got paid for it. We never got a multiple. We are the cheapest earnings PE ratio because we’re mining Ethereum that’s gone. So, that does impact the margins because everyone knows what the margins for Bitcoin mining. It depends on your electricity costs, and the quality of your machine, the efficiency of that machine that you have.

Frank Holmes: And if you say you’ve got exhalates with S19 pros and your cost of electricity is a nickel, it’s so easy to calculate what your cash is going to be. That’s really simple. And so it does, what we do know is that we were trading at six times earnings when our peers were trading at 40, so that high margin business is gone, but it’s allowed us to build out by data centers, build data centers and put a two exhaust on our balance sheet and income statement. So, that’s what high does. It mines Bitcoin, it mines only green energy but some real cool stuff.

Frank Holmes: I got excited over when I was in Europe because in Sweden, we’re looking at 90 square foot greenhouse, and we’ll take the heat from our data center in a heat water, and then the warm water will turn around and provide produce, and it’ll be red peppers, which is high income product. It’ll also be tomatoes and cabbages, and lettuce. So, it’ll provide all the food for the northern part of Sweden. No carbon footprint coming from Italy or Spain. This is in motion, and I saw it in Amsterdam, and I was blown away by it. Literally blown away because I saw two megawatts heating this huge water facility, and walking in, and it was eight football fields, Frank, eight football fields and the yellow robot machines going up and down the aisles.

Frank Holmes: It looked like for miles, and you could see them, and there’s all picking all these red peppers. And the only human beings really involved, where the ones were sorting a quality red pepper because women could tell and men better, which by touching and holding it, good, bad, good, bad, and it’s a high margin business. And they provided all for those that the jalapenos, but sorry, the paprika peppers.

Frank Holmes: So, it’s coming from a facility, and they only use 10% of the water, robots, recycling. That same molecule can be recycled to heat. Now, we are doing that right now in Montreal and Quebec. We take from a 40,000 square foot repurpose graphite business building, and we’re mining, and we’re taking the heat to heat a 2000 square foot building, and it has 175 employees making whirlpools for Quebec.

Frank Holmes: So, we know this engineer, and we know it’s going to happen. And now, we’re planning for the hockey rinks in northern Sweden that we strap on a two megawatt facility, right beside the hockey arena, and we can save $100,000 to $200,000 electrical bill and be mining Bitcoin. As long as electricity is inexpensive, we have the efficient machines, so we are doing some of this stuff in North America. We’re owning green, but we see a huge opportunity of repurposing Bitcoin manufacturing.

Frank Curzio: That’s fantastic. And last thing here before you go, you have an event that is taking place on November 30th going digital, investing in the future of Bitcoin and blockchain. I think it’s even more important now at everything going on. It’s sponsored by HIVE Blockchain. You have great guests. I know Daniela Cambone, who’s interviewed me plenty of times. Awesome. She’s going to be a co-moderator with you. Mark Yusko, big name, very, very entertaining and speaks his mind, but Eric Wade… You have Mike Lowery. I’m going to be there as well. Talk a little bit about that, and if people want to sign up to it, how can they do that?

Frank Holmes: You can sign up by going to HIVE Blockchain Technology, and I think what’s important here is that, by the end of this month, we’ll know exactly what the landscape is for the elections, and we’ll have policies by then, I’m sure, coming out for crypto, and what will that mean? Because regulatory, no doubt has been a headwind this year. A challenge for a lot of the crypto mining industry. So, we want to know what the clarity. We’ll try to help investors navigate through what those issues are. And remind those for new people that are looking at them, what is Bitcoin? What is it good for? How has it evolved, and where do we think it’s going to go? But more important is the political landscape because we talked earlier, we need some regulation, some defining rules, especially for these exchanges and these shadow banks, with their allowed and not allowed to do to stop this disaster that’s just taken place and give that clarity going forward.

Frank Curzio: Yeah, Makes a lot of sense. Frank, I know you’re busy these days. I really appreciate coming on. Good friend. Love our conversations, and hopefully, you’ll come on soon.

Frank Holmes: And wheels up.

Frank Curzio: Wheels up for Jets. You got it buddy. I’ll talk to you soon.

Frank Holmes: Take care.

Frank Curzio: Okay. All right guys, that’s it for me. Real quick here. A lot going on in the crypto space. Frank is just a great, great guy, and I went to Boeing facility in Washington, invited me to ring the bell, New York Stock Exchange, launch his Gold ETF, Go gold. The enthusiasm that he has is just, it’s incredible. It’s just someone that’s willing to learn, has been through all this stuff and you can see him, he’s always excited when he comes on. But just a really, really good guy and a really good friend. So, I’m glad… He’s been in this market for a while. You could tell because he is not as leveraged or not leveraged like everybody else, getting more reports on FTX. Everything that’s going on with that situation, so I’ll be reporting more back to you with that.

Frank Curzio: But for me, real quick before I go here is just the frustration here. We thought we were past this point and getting more people into crypto, especially what we’re doing and just the people I would talk to, especially in the metaverse is so exciting. And then you see this is a setback. People just like, “Wait a minute.” They just seize like $3 billion on Silk Road, and we just saw Celsius and Voyager, which is a good name.

Frank Curzio: Yeah, we’re not able to see these numbers, none of regulation. And you finally see the institutions come in, and so many people were invested. So many big names invested in this exchange, FTX, it’s incredible. But they’re all going to be clear winners. And when you look at markets like this, this is a time where if you’re believing crypto long-term, this is a dot com in 2002, when the market crash, 75%, 80% in the survivors, if you own any of them, you probably own your own airport. You own seven houses, eight houses. This is an opportunity. Again, this is where the innovation’s coming from.

Frank Curzio: It’s been painful just to see this even for me because it’s very, very frustrating as someone who believes in crypto, but I hope for the strengths in the industry. Hopefully, we see more regulation behind the industry within crypto. But if you look at companies like Coinbase that has no exposure, five and a half billion liquidity, so some go on TV yesterday, saw it, cursed. I would say sorry, when I curse, just say crypto. They have exposure, and just naming companies that have exposure that I know don’t have exposure to FTX which is frustrating. And I’m like, they have 5 billion liquidity plus, and they had to come out and say that. But you see even Binance as well in a great position where they’re not as leveraged. There’s a lot of companies out there that may be good position. We thought FTX was that name since they were purchasing so many assets. So many assets, which is incredible. I mean, you’re looking at it, and I wrote some of these things down.

Frank Curzio: It was just the number of assets. You’re looking at Scaramucci, right? They invested into Scaramucci’s SkyBridge Capital, which it was going to be sponsors of their sole conference in Bahamas and North America all over the place. You’re looking at the BlockFi, right? BlockFi went with three hours went under. FTX agreed to lend them $400 million and actually looked to as a credit facility and said, “We’re going to purchase you.” Is by with a cost they could purchase on a certain price. Blockfolio, Ledger X, liquid. September, it was a Voyager that they bailed out. BIFO exchange in June 2022. And again, September 2022 was the with SkyBridge Capital. Scaramucci. I just watched that interview with Scaramucci. Scaramucci, I’ve interviewed on this big name. Very, powerful. I think that fund was like $4 or $5 billion, when everybody… But said they’re taking money into it, and $40 million was going to crypto companies on his corporate balance sheet as long-term investments.

Frank Curzio: A lot of stuff’s probably down incredibly, so I think you’re going to still see a fallout from this. Especially, it’s not over. It’s not like, “Okay, Bitcoin, you’re going to see a lot of more companies come out.” Their legs extend very, very far in this industry, and I’m really starting to dig in to see it. Just $25 billion valuation round in October 20, 21. 69 investors. You’re looking at Ontario’s Teachers Pension Plan invested in this. Again, this valuation was very small at the time. You look in two years ago, this is a company that was a 1.2 billion valuation. So, this is like 202,1 when they raised this. You’re looking at BlackRock, Paul Tudor Jones, Tom Brady. Then you had Tiger Global, big investors in this, just the names go on and on. And in January 22 when they raised money, it put a massive $32 billion valuation on this thing.

Frank Curzio: So, you’ve seen this company, it’s spending, and you’ve seen this guy go around and talk a lot and stuff and you see it’s definitely… I think it’s going to be a setback. I think he’s still going to see liquidity. Those technics are going to stretch into areas that you’re going to see. Seeing Solana, which is a really good company that had exposure to this. You need a lot of this to filter out the industry, but at the end of the day, you’re going to be able to get some really, really great projects. Some people that we’re talking to, and we are going to get unbelievable deal terms now because it’s very difficult to raise money.

Frank Curzio: Frank and I were talking before we went on, he said how did M&A markets down 90%, and that’s going to continue next year with the Fed continuing to raise rates. You’re not going to see lots of IPOs. Going to be almost impossible to raise money unless you have fantastic ideas. But it’s going to put us in a position as some of these companies and good names coming to us as we vet them, we could really dictate those terms at a point. We’re going to be getting founder shares. We’re going to be getting equity at dirt right at the bottom. And that’s how you make an absolute fortune if you talk to America too.

Frank Curzio: So, if you talk to Doug Casey, if you talk to all those guys in those industries, the reasons why they made fortunes and fortunes and fortunes well, gold has not been a great market, let’s face it. For a very, very long time, is when you’re getting founder shares, it’s like getting shares and specs at $2, $3 where you don’t care if it goes from 10 to seven, you’re still making a fortune. You’re hoping that you get something like DraftKings that goes at 30, 40 or whatever, and then you’re making absolute fortune. Instead of buying one house, you buy three or four of them. That’s the opportunity we’re going to have in crypto, and that’s the exciting part.

Frank Curzio: But for this very disappointed, I’m surprised to see this, Novogratz came out and said he was surprised. This is the guy that’s been in Washington lobbying. He’s one of the biggest donors at Democratic Party, which I thought was a good thing because Democratic Party, regardless of what happened with the elections, is staying in power because he wants to be part of the regulatory structure, which along with CZ and Binance, so they’ve been spending a lot of money in politically as well. And just to see this setback, it’s really a slap in the face. A guy that spent a lot of time in Washington, it really is a slap in the face.

Frank Curzio: So, let’s see how this plays out. I’ll be there for you even when our crypto newsletter, a lot of stuffs going to get hit, but it’s going to open up the door to lots and lots of opportunities. I want to thank Frank for coming on. I’m going to try to get on a lot of other people, insiders that really know everything about this situation. Break it down.

Frank Curzio: Yes, we know it’s going to be painful, but how do we make money? Who is going to be the survivors? I think Coinbase is fantastic position. They have tons of liquidity. Most of their trading comes from institutional investors. And this company got now 20% basically because people think that they have exposure to FTX, which they don’t.

Frank Curzio: So, no regrets. Got hit a little bit. You’re going to see Binance is doing a good job. I don’t know if that deal’s going to go through, if they’re going to buy the assets. If they do, they’re going to buy them for very, very, very dirt cheap numbers. But let’s figure it out, see what’s available. And I think we’re going to find some really good opportunities to this, right? You don’t have markets like this often and this market is really… The confidence in this market has really come down to the point where everyone’s going to be selling a lot of stuff, and it’s going to provide lots and lots of opportunities, and I’ll promise, I’m going to bring those opportunities to you, as many as I can.

Frank Curzio: So, questions or comments? I’m here for you. Hopefully, you enjoyed the interview. Again, I always say this podcast about me, let me know your thought frank@curzioresearch.com. That’s frank@curzioresearch.com. And as always, thanks for the support. I’ll see you guys next week. Take care.

Announcer: Wall Street Unplugged is produced by Curzio Research, one of the most respected financial media companies in the industry. The information presented on Wall Street Unplugged is the opinion of its host and guest. You should not base your investment decisions solely on this broadcast. Remember, it’s your money and your responsibility.

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