Bitcoin, Ethereum bounce back after China crypto ban

David Grider, Grayscale Investments Head Of Research, discusses the latest moves for Bitcoin and Ethereum after China declares all crypto transactions illegal.

Video transcript

- Now, let's turn our attention to Bitcoin today. We've seen it bounce back from the lows that we saw on Friday now trading above that 43,000 level, but it did pull back from the 44,000 we saw sort of during the Asia trading hours. Ether, meanwhile, up a little there but trading a little flatter I guess. Crypto assets hit hard on Friday after the PBOC over in China banned all crypto transactions.

For the very latest in the space, let's bring in David Grider, Grayscale Investments Head of Research. David, good to talk to you today. There's a lot of people on Friday who said, look, what China said is just an extension of what has already been happening, and yet, we did see a pretty big response in the price action. What do you make of the latest headlines coming out of China on this front, and ultimately, what do you think it means for where some of these assets trade?

DAVID GRIDER: Yeah. Thanks a lot for having me. Just to recap for folks who maybe didn't get the headlines, China had announced on Friday out of some of the central bank and signed by some other authorities that the government was really going to be cracking down even harder on different areas of the crypto market.

I think one of the prior times we were on your show we were talking about some of the things that have been happening with China and the mining activity, and so to a lot of folks this is actually kind of nothing new, what's been happening with China and crypto. Obviously, crypto has been illegal in China to trade for some time, and we think that this is kind of just a slight change-- I mean, not really a change in terms of the way it's being enforced, but they're talking about some of the other exchanges that are offshore that service Chinese citizens and how they might go after some of the people that are employees of that those exchanges that are onshore.

So what we've seen is some of the big Asian exchanges like Huobi or Binance or OKEx. Those folks who are kind of folks who focus more on that Chinese Asian market have kind of said that they're going to kind of stop access to some of the US citizens, and they're kind of changing the way that they're going to be allowing folks further to stop registering or kind of shutting down accounts later in the year.

But I think that what's happened is pretty typical of the market, right? It sells off on this type of news in the past and then the market has kind of continued to bounce back from this. We've already seen that start to happen to this Monday, but we think that the market's just doing a little reshuffling here and when we think it gets worked out.

- Yeah, David, good to be chatting with you again. I mean, it was interesting to see kind of you're talking about Huobi, one of China's largest crypto exchanges. They're saying that they're going to shut down access for mainland users by the end of the year. I wonder how much over the weekend that may have given a boost to some of these decentralized swap platforms, like Uniswap and SushiSwap. We saw both of those pop more than 20% on Sunday.

And I guess it kind of stokes the idea that DeFi is really the reason, you know-- that there is a reason behind some of those protocols and trying to kind of decentralize access. This is kind of what crypto's been all about is the fears about regulatory crackdowns. And so when you shift back here to the US, I guess, you know, I wonder if it does anything more to maybe give regulators here a boost and how important that is when it comes to really what's been driving the big pops all year, which is institutional adoption. If in your kind of discussions you're seeing maybe a cooling off a bit from institutional investors looking to put money to work.

DAVID GRIDER: You touched on a lot of great points there, Zach. The first one that I think is really important that's worth addressing is we think that there's going to be continued access by folks both in China and in other parts of the world. But I think that in a way that access is going to evolve. So DeFi we think is actually going to be one big way that folks gain access to crypto and continue to use the crypto ecosystem for really kind of gaining some liberty and freedom for access to this market.

So we've actually seen, as you mentioned, some of the DeFi protocols, Sushi and Uni and some other derivatives, ones like DYDX, they've been performing well in terms of their token prices while some of the centralized exchanges that represent those offshore exchanges that we mentioned prior had been actually still down over that time period. So I think that that really is the market saying that there's going to be a shifting of volume to some of these areas for folks who are maybe cut off.

And I think that the other part of this is if volume does shift away from some of these larger kind of offshore exchanges that are maybe under a less watchful eye of the government to areas maybe that are on chain and transparent to also potentially giving the US regulated venues, a greater share of volume, I think that it could actually be good for giving regulators a greater degree of comfort over the pricing of the crypto market. And that's something that they've expressed concerns over in the past. So that could actually be good for crypto.

- David, what does it ultimately mean for those who are watching this space saying, well, I want to gain a little more exposure here, but how should I be looking at this volatility? We've heard the case of as more and more institutional money comes in the volatility is likely going to steady a little more, but for those who are kind of looking to dip their toes in right now, what do you say?

DAVID GRIDER: Yeah, it's an interesting question. There's definitely a lot of volatility in crypto, but you've seen that as the market has gotten larger there has been actually maybe some reduction in volatility. One interesting way of actually also looking at it the volatility is that if you compare kind of last cycle or the earlier in the years move with the China news, there's a lot of deleveraging that happened, so that took prices down quite a bit on that negative headline. You didn't really see that here. I mean, you saw a little bit of a sell off with crypto, but you didn't see that here on this kind of recent news. And maybe the market's not viewing it as severe, but I think it's also a sign of maturity in the market and kind of the health of the market.

So I think in terms of allocation to the asset class, I think that there's definitely a lot of opportunity to be in crypto over the long run. We have a number of products that we help investors gain long term exposure to crypto. You know, we're looking at the way that our clients see the market. They're not really focused on these kind of short term movements in terms of the volatility that exists, and they're really kind of long term investors. So, we think that that's probably one of the best ways to play it in terms of setting allocation and strategy for gaining exposure as opposed to trying to time markets, but there's definitely a lot of opportunity here in the space going forward.

- And David, I suppose just to drive that point further to wrap up here. I know you're at a new firm now, but prior when we spoke, there was $100,000 we were looking at in terms of pricing structure, I suppose. You know, some people have not backed off of their price targets here despite all the volatility, and we've seen Bitcoin hold that $40,000 level even after this crackdown here. I mean, when you do look longer term, you still in that camp, you still see kind of that price appreciation on deck.

DAVID GRIDER: Yeah, it's something that-- we're obviously very bullish here at Grayscale on crypto as an asset class as a whole, Bitcoin and Ethereum. You know, of course, some of those price targets were from my prior firm where I was at, so I'm not going to speak to those going forward but definitely have a lot of conviction in the upside of the asset class. And we obviously still remain very confident that this is the right place that investors should be allocating capital both over the medium and long term. And we think that it's a great place to have exposure, so we're definitely on the bullish side, so.

- And I mean, this is a discussion around Bitcoin too mostly. It's also interesting to think about how these other assets in the space get regulated as well, but for now, it seems like Bitcoin does have that going for it in terms of some of the clarity relative to some of these other ones. But David Grider, Grayscale Investments, Head of Research, appreciate you coming on here to chat with us again. Be well. Hope to chat again soon.