We talked to nick carter of castle island ventures to find out Music welcome to cnbcs crypto world im, pippa stevens crypto prices dropping yet again this morning by noon, eastern bitcoin had fallen. Another three percent since yesterday, although its off its lows at one point last night, bitcoin briefly fell below 30 000 ether was worth about 2 300, while luna fell to 31. A 45 decline were going to talk more about that in a moment. But first i spoke to jack mcdonald, ceo of polysign, about the sell off. So, of course, we all saw that massive sell off in crypto yesterday, bitcoin dropping to the 30 000 level. Lets start with just your reaction. My reaction is its a little more of the same of what weve seen over the last couple of months, which is that bitcoin and other cryptocurrencies, but well talk about bitcoin as a leading indicator are really being treated as as risk on risk off assets. And i think the correlation between the broader market movements have been quite strong of late and i think thats really what were seeing more than anything else and for a long time crypto was thought to be. You know uh something to head to when we do see volatility in the broader market, so is that narrative now changing? Is it shifting at all? I think its a great question pip and i think the narrative has to change because – and maybe the answer depends upon what your time horizon is, but certainly in the last couple of months uh, the correlation has just been too strong to ignore and youre right.

You know a year ago, part of the um the the argument in favor of cryptocurrencies in the defense. If you will was its a perfect hedge against inflation, and i think, outside of the terrible war that were seeing in the ukraine, the other big macro trend has been fear of inflation and fear, ultimately, of a recession. Interest rates rising, etc, and i think thats been a perfect storm weighing in on on cryptocurrency. I do still believe longer term. You will see a disconnect uh from some of the other market trends, but of late its undeniable that theres been a very strong correlation here and with these macro factors that are influencing the price of cryptocurrencies and bitcoin, given that some of them are longer term headwinds. Like you know the war in ukraine, we dont know when thats going to end inflationary pressures. Do you anticipate 30k, as holding for supporter? Do you think that prices could fall below that level? You know i dont have a crystal ball and i think what the markets have taught us uh of late. Is that its really hard to predict? I think most of us thought wed, see green all day on the screen and not see this whipsaw. That weve, seen in the in the equity markets, it feels to me like, were sniffing around for a bottom here. It feels to me like were getting to a point of capitulation. I think what youre seeing in the certainly in the crypto markets is a lot of momentum and speculative investors who are getting flushed out here.

We see from our business standard custody and trust a lot of interest uh coming from institutions. We just had a very large uh prospective uh investor come in today, who feels like its the bottom and theyre looking to move uh into the space, and so i do think theres a lot of pent up demand. I keep reminding myself when i do my own uh, you know gut check here is that the longer term fundamentals have really remained unchanged, theres, nothing that weve learned fundamental to the crypto long term story that i think, has changed over the last couple of months. Here. We have the advantage of seeing what institutions are doing day in day out and big major institutions globally believe in the long term trend not only around the underlying blockchain technology but, more importantly, around digital assets. We are in the process of really rewriting a new operating system for capital markets, and i think that longer term thesis will ultimately prevail and that the higher quality, uh tokens and assets will prevail as well, um and then just finally, here theres been a lot of Analyst calls for the second half of 2022 to see a rebound in crypto and, of course, you dont have a crystal ball, but is that what you forecast as well? You know: do you think that we will see a turnaround unquestionable? I think the hodlers are are going to remain steady, thats, certainly what ive been doing and, as i said, if anything, the i think the real money thats going to be coming into the space views this market draw down as a real opportunity for the longer for The longer term, so i remain very, very bullish.

Okay lets talk about todays other top stories. First, up new research finds more than 40 percent of bitcoin. Investors are now under water glass, node found that number was even higher for investors who purchased bitcoin in the past. Six months, just as the cryptocurrency fell sharply, analysts also found investors were willing to pay higher fees to sell their bitcoin holdings, a sign of urgency among investors to take some risk off the table. Next, some investors might be looking to sell, but el salvador is buying the dip. President nai bukele tweeted that the country bought an additional 500 bitcoin amidst the sell off that comes out to roughly 15 million dollars. Right now, the country holds about 2300 bitcoin. Finally, binance temporarily suspended withdrawals of luna and the terra stablecoin trading volume for both cryptocurrencies surged, as prices crashed and the worlds largest crypto exchange halted transactions citing network congestion trading of both cryptocurrencies has since resumed. Todays main story is all about luna and the terra stable coin. Specifically, weve talked a lot on the show about lunas efforts to buy 10 billion dollars to bolster the ust stablecoin. Well, yesterday, the luna guard foundation swiftly reversed course. The foundation liquidated its bitcoin reserves in the hopes of stabilizing the luna token and ust, but the stable coins still plummeted at one point, ust reached a low of about 70 cents. It sparked fiery debate in the world of crypto about whether these kinds of tokens, known as algorithmic stable coins, could even work as intended treasury secretary, janet yellen, even weighed in on the stable coins of volatility.

The presidents working group issued a report concluding that current statutory and regulatory frameworks dont provide consistent and comprehensive standards. I would note that there was a report just this morning in the wall street journal that a stable coin, known as terra usd experienced a run and had declined in value and um. Well, so i i think that simply illustrates that this is a rapidly growing uh product and um that there there are risks to financial stability and we need a framework. But what does this crash mean for the future of ust and algorithmic stable coins? Well, yesterday, crypto worlds, mackenzie sagalos spoke to nick carter of castle island ventures. In the midst of all the sell off to find out, so nick were hearing that luna sold off its bitcoin reserves, and i wonder if we can just start with you know: how exactly does an algorithmic stablecoin work well, theres a huge variety of different models in Algorithmic, stable coins theres no one way that they work. In this case there were some bitcoin reserves. You could redeem your usts for bitcoin uh. You could also redeem them for luna, which is effectively the equivalent of bank equity uh in the system, its the native token, in the terror ecosystem um. But for the most part, the system is backed by faith, its not fully uh guaranteed its certainly not fully backed by reserves uh. It was really just backed by faith in in the issuer, effectively uh and so thats how it works.

Basically, whether you trust the issuer to conduct open market operations to ensure that the peg is is regained, which is you know, obviously not the case right now. Just how significant is this well itd be significant, um reversal in the narrative right, because just a few weeks ago, um, you know there were entries from the luna ecosystem to the bitcoiners right, um and uh. It was perceived generally as a very good thing for bitcoin right. We are accumulating this huge reserve of bitcoin. I believe the uh tara folks made claims of maybe up to 10 billion dollars worth of bitcoin and then just a few short weeks later, theyre apparently liquidating bitcoin to support the peg. So all they ended up doing was just adding massive amount of cyclicality and reflexivity to the price of bitcoin. I mean you know. The net effect has not been positive right, whereas the way this was pitched to the bitcoin community was hey were going to be. You know really taking a lot of bitcoin supply off the market and locking it away for a long period of time. Thats manifestly not the case and uh. All things considered, not a great outcome for bitcoin itself. So on that last point, is it fair to say that the price movements that were seeing in bitcoin could potentially be? You know tied to what were seeing going on with tara? Certainly part of it? I think the market is expecting some for selling here on the part of terra and and the reserve i mean uh, apparently its a one: half billion dollars worth of bitcoin its uh, not an insignificant amount.

That said, we are seeing a broader sell off in bitcoin crypto markets generally and risk assets generally. So i dont know if we can attribute the whole setup sell off to tara. I think its more a general function of liquidity conditions, tightening up so luna bought bitcoin. As a way to stabilize its currency and isnt a time of market volatility most when you would want to hold on to your reserve, is this not a counter intuitive move its like a central bank selling their gold reserves? You never really meant to sell it. Frankly, its meant to be and im sure they didnt want to sell it right its meant to be a mechanism that induces market confidence in your structure. So i think they probably werent planning on selling it so so rapidly, but with luna selling off by 40. Over the last week, uh clearly they didnt want to uh. You know: induce inflation, significant inflation in luna in order to defend the peg so thats why they have the hard asset in bitcoin, which is less correlated to the ust luna system. You know this isnt the first time that an algorithmic, stable coin has run into trouble. Is this the beginning of the end for this kind of stable coin? Weve definitely seen this. We saw it, notably was iron bank, which was uh failed in a very similar way, and you know that was a total failure, but it was on a much smaller scale.

I mean ust at peak was worth 18 billion dollars. Tara peaked um. You know 40 50 billion dollars. I believe so you know the scale here is absolutely enormous and uh. You are going to see lots and lots of mainstream press coverage. Youll probably see uh. You might even see congress making noise about this, because this is, you know, ultimately, a very large system and a lot of retail investors were holding ust in order to get access to the yields from anchor protocol, which was the number one effectively best paying pool liquidity. In the d5 space – and you know ultimately, if this thing does fail – theres going to be a lot of regular old retail investors like significantly harmed, and this is going to induce scrutiny on the entire stablecoin space right, so even the fully reserved ones. I do think that this will be an event that that causes entrepreneurs to you know really think twice about creating algorithmic stable coins, especially as the track record of these things is poor and uh in in a you know, market contraction, flat down market like this. These ideas that may have historically worked well in crypto uh, just dont work as well anymore, so yeah. I think this is a huge blow for the whole algorithmic stablecoin space. Okay thats all for today, but be sure to head over to cnbc.

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