Institutional Interest Drives a Crypto Resurgence

SPEAKER_1 (0:00)

To discuss the latest in the world of crypto, let's welcome in our next guest, Christian Lopez, Managing Director and Head of Blockchain and Digital Assets at Cohen and Company Capital Markets. Christian, great to have you on here. I'm looking at Bitcoin right now.

We're at about 78,250, we'll call it Ethereum's just under 2,500. But both are still down substantially year to date. What's driving the disconnect right now between crypto and the broader equity markets?

Christian Lopez (0:28)

Well, really nice to be on here. Listen, the crypto market fell in October of last year due to a variety of reasons, particularly an issue with one of the larger exchanges and a massive deleveraging event. I think it's been seen a bottom and accumulation in the high 50s, low 60s range over the last several months. But recently in the last two, three weeks, we've seen a bid for crypto.

Obviously, it has come back to all time highs. But a lot of people in the industry and in the crypto market are believers of the crypto cycle and if history has anything to say, we're probably looking at an October, November cycle where we're going to continue to see a nice bid for the crypto asset.

SPEAKER_1 (1:13)

Now, a really interesting thing about one of the reports that you sent over is that capital continues to pour in even when we were at those depressed levels, $50,000, $60,000 levels.

We've been under pressure. It's nearly $20 billion, I believe, raised across the sector in just the past year. What is that money betting on?

Christian Lopez (1:34)

That's a great question. Listen, the money is betting on infrastructure right now.

Where folks are really focused are stable coins, global payments, tokenization. The market for the actual digital asset, the underlying cryptocurrency has been a bit softer as we discussed.

But there's been accumulation from larger players, institutions, pension funds. You have folks like BlackRock, Vanguard, Fidelity, and other asset managers. Morgan Stanley launched their Bitcoin ETF. All of them are telling their clients and consumers, you need to hold a portion of your assets in Bitcoin, right? Your portfolio should have a 2-5 percent exposure to Bitcoin and other digital assets. So that continues to drive the market. I think we're going to see that bid. Sellers are running out of steam, and we believe at Cohen that Bitcoin is headed to the next leg up.

SPEAKER_1 (2:25)

Another thing that we're seeing is this wave of public companies reinventing themselves around these crypto treasuries. Is this becoming a legitimate new corporate strategy? Are we seeing a new version of, I guess you call it a SPAC phenomenon?

Christian Lopez (2:42)

I mean, that's really good analogy, right? These companies, what they did was, they're using their vehicle to go buy crypto currencies in the public markets. But your question is, are we seeing a new phenomenon? I think reality is, I think that was a brief period of time where people took advantage of a really hot market. Last year, the crypto market was pretty wild from a positive perspective. Bitcoin hit all-time highs of 125, Solana, Ethereum and other alternative digital assets really ran nicely.

Players in the ecosystem took advantage of that. I think right now, because the regulatory lanes are a lot more open, ETFs are available. Other ways to access crypto are open. The digital asset treasuries, I think, probably you're not going to see any new ones, but the ones that do exist and took advantage of the market, they now have the ability to use the capital markets to go do interesting things.

Financial engineering or go acquire smaller companies to generate revenues and cash flows in order to accumulate more of that asset.

SPEAKER_1 (3:44)

Christian, we've got some crypto related stocks up on the screen next to your face right now. So I'm wondering, walk me through the economic rationale as we're talking about the assets themselves. Why you should own a company's stock that comes at a premium to its underlying crypto holding rather than just buying the crypto directly?

Christian Lopez (4:06)

The main reason is really the financial engineering aspect. I think a really good example of these companies is Strive, which is ASST and MicroStrategy. They've accumulated enough digital assets in their capital base that they are very liquid. They trade billions of dollars every day in the public markets, and that allows them to take advantage of that liquidity and sell different parts of the capital structure to different types of investors all the way from long-term institutionals to ARB funds and hedge funds all the way down to retail.

As a retail investor, if you're interested in exposure to the digital asset ecosystem, the reason that you go buy these assets is because you get a levered play on the underlying asset. If you're not looking for extra juice on top of the underlying, then yeah, your best bet is to either go buy the digital asset directly or you go buy the ETF.