00:00 Speaker A

Bitcoin trading around the $85,000 level and the weakness rippling across stocks tied to the industry.

00:08 Speaker A

Microstrategy, Coinbase, Robinhood, all closing sharply lower. Joining me now is Owen Lau, Clearstream managing director and senior analyst. And we were just talking in the break how significant this slide in Bitcoin is. We’re now down 9% since the start of the year. What do you attribute this slide to?

00:35 Owen Lau

Yeah, there are a couple of reasons. So let’s go back to October 10th. So there was a massive liquidation in the crypto space. The amount was about $19 billion, and then since then, the liquidity has dropped quite dramatically. If you talk about today’s move, I would attribute that to three key reasons. Number one is Bank of Japan signaled that there may be interest rate hike this month.

01:05 Owen Lau

The second one is there were there was a hack on a Dfy platform earlier today. The third one is there was a conversation about, you know, the operation choke point 2.0 that could be coming back. So that all aggregate into maybe it it kind of magnified the auto deleveraging problem we saw that back in October 10th.

01:25 Speaker A

And it just speaks to how interconnected crypto is, all the different currencies. You have these companies that also are very exposed to crypto struggling today. And I know you’re bullish on names like Coinbase and some of those other players, but when you have so much volatility in the actual cryptocurrencies, how does that feed into sentiment versus fundamentals?

01:50 Owen Lau

Yeah, so first of all, I want to um mention that there is still a high correlation between the crypto currency and also crypto equity. So that’s why I advise investors to look at these on a longer term basis. Like that high correlation just shows that the immaturity of this asset class. But over time, I think that correlation could break. So to me, I would say investors should look at these on a longer term, maybe three or five or 10 years basis for the investment.

02:17 Speaker A

Because fundamentals could essentially go out the window if you have Bitcoin that has a drawdown of 20%.

02:22 Owen Lau

Correct. To me, that’s actually a buying opportunity because I went to like many conferences uh last month, uh for example, Money 2020, uh Ripple, and also Chainlink conferences. What I’ve been hearing is blockchain adoption continues. More and more Tt companies are getting into this space and launch crypto products. So to me the fundamentals are actually very strong, but we have to you know, you know, but we have to pay a longer term game.

02:49 Speaker A

You have to be comfortable with the volatility that comes with writing the Bitcoin crypto wave at large. And and what about the the outflows in Bitcoin ETFs? Is that should that be a concern for investors that because we’ve been hearing more and more that there’s increased outflows there.

03:05 Owen Lau

So that was part of the uh large liquidation we just talked about on on October 10th. And when you see that large liquidation, some investors, if you don’t have a longer term view and you start to lose money, they may try to stop loss, right? So one reaction they will take is to just sell the Bitcoin or other tokens. So that could cause a lot of the outflow. But but again, if you look at these uh kind of names on a longer term basis, I would say longer term the fundamental is still pretty strong.

03:32 Speaker A

So, longer-term fundamentals are still strong. What other catalysts are you looking at that will drive crypto hopefully higher in the future.

03:39 Owen Lau

So, one key catalyst we are looking at is regulatory clarity. So, uh thank God, we have like we used to have the government shutdown and now government reopen. I don’t think I mean, I think this is a prerequisite for the government, for the Congress to think about or come back to think about the market structure bill. Um, in the house, they called uh the clarity Act and in the Senate they’re developing their own market structure bill. My expectation is it could come back to the market earlier next year, that could be one key catalyst for the whole industry.

04:08 Speaker A

So, you were talking a lot about more crypto adoption, all the catalysts on the horizon. How should you, how should an everyday investor be positioned within the crypto market? Is it through direct exposure through some of these ETFs or maybe some of these crypto-adjacent names?

04:22 Owen Lau

So, I would say first of all, think about from a capital allocation spread up perspective. Don’t just allocate 100% of your capital into crypto space. To me, the better or the a good starting point is maybe you allocate 1% or 2% of your overall wealth to the crypto space and try some of these tokens or or crypto equities first. And then once you feel more comfortable, you can start increasing uh that allocation to maybe about 5%.

04:47 Speaker A

And it obviously always depends on your risk tolerance and where you’re at in your investing journey. Um one of the big themes in your research is blockchain for cross border payments. How real is is that shift and and who could benefit most from something like this?

05:00 Owen Lau

So based on our estimate, the uh TAM, it’s about $40 trillion when we talk about the cross-border B2B payment opportunity. So it’s it is a big opportunity. But right now there are many large companies are kind of occupying this space, but blockchain because blockchain can make the transaction faster, cheaper, global and instant. So that’s why it has an opportunity to disrupt this uh space. And again, this is a $40 trillion opportunity. This this is huge.

05:28 Speaker A

All right, this is huge. We will have you back to to see where things are. Hopefully, we’ve climbed back from some of these losses. But Owen, thank you so much for joining us today. Appreciate it.

05:35 Owen Lau

Thanks a lot.