Bill Barhydt is the founder and CEO of Abra. In this interview we discuss how long the crypto bear market will last, Bitcoin’s outlook and adoption, Ethereum merge, SEC and Crypto Regulations, and his BTC and ETH price predictions for the next bull market.
Transcript
Welcome back to the Thinking Crypto podcast. Your home for cryptocurrency news and interviews. With me, today, is Bill Barhydt, who’s the founder and CEO of Abra. Bill, great to have you back on the show.
- Hey man, good to see you, great to be back.
- Bill, I wanna start off with Abra. Can you tell us what’s new with the platform, any upcoming, cool things that we should know about?
- Yeah, there are actually. So we’ve passed the… We’re right about 3 million users now globally in over a hundred countries, growing fast. So yeah, we have our trade, earn, borrow products. The ability to trade across a hundred plus cryptocurrencies. Excuse me. The ability to trade across a hundred plus cryptocurrencies, we’re gonna be launching a new version of our trading system in the next few weeks, much lower spreads. The ability to launch new cryptocurrencies faster. We’re full steam ahead on our interest-earning products where we pay yield on Bitcoin, Ethereum, stablecoins. And we’ve really navigated that space really well. We’re one of the few, if not the only company that hasn’t had, you know, any problems in that world, we continue to pay yield. We haven’t suffered from any of the mistakes that our competitors have made and with fantastic risk management processes, our borrow product continues to excel, which allows people to borrow against crypto holdings. So you can access, you know, if you’ve been in Bitcoin for a while or Ethereum for a while, you can access the gains by borrowing against those holdings. Excuse me. And then we’re launching a new NFT service in Q4. We’ve got a new American Express card that pays rewards in crypto coming out, most likely in the Q4, Q1 timeframe. There’s some other stuff that we haven’t announced yet that we’re doing. We’ve got some new DeFi products and services in that kind of earn umbrella. So yeah, so it’s kind of full steam ahead at Abra in terms of just building that big banking kind of ecosystem for crypto.
- Yeah, for sure and you know, you touched on some other companies within the industry not doing so well, and obviously we’ve seen what happened to Voyager and Celsius. And I’m curious without you giving away your secret sauce or your full of business plan and so forth, how have you guys been able to survive the bear market and still offer the lending products that you currently have?
- Yeah, I don’t think it’s a big secret. We talked, I think we actually talked about this the last time you and I spoke and, you know, having risk management practices in the lending space is not a new idea, right? It’s not a crypto-specific idea. Whether you are operating as a prime broker in the equity space or a commercial lender in the real estate world, or, you know, doing asset, you know, crypto-backed lending, it all kind of purports to a requirement for risk management processes commensurate with the business that you’re in. And I’ve talked about this for years and I’ve warned others in our space that some of the risk management practices I was seeing at certain companies was not going to end well. And unfortunately that turned out to be the case. And we’ve prided ourselves at Abra on having, we have a very big risk team. It’s a big percentage of the overall employee base. And that team oversees all of the banking-oriented practices within our lending system, our interest-bearing products, et cetera, et cetera, DeFi. And that’s paid big dividends for us.
- For sure. And I’m gonna ask you a question, I don’t know if you can touch on it, but it just came to mind because of what the SEC has been doing, you know, looking at other exchanges and platforms, their lending business model. Has the SEC approach the folks, you and the folks at Abra about your lending and borrowing?
- I’m not sure, I think we… We talk to the SEC all the time. So when I say, I’m not sure the nature of the conversations go far and deep, so we’re always having conversations with states, federal regulators, you know, all of them basically. And we have a team of lawyers. Internal, external. We have internal securities lawyers, external securities lawyers, internal banking lawyers, external banking lawyers, compliance, regulatory. So there’s lots of conversations going on. I don’t sit in on most of them. So, you know, I’m not aware of the exact content except to say, I’m pretty sure it gets broached, you know, on occasion, but I’m not privy to 100% of the details.
- Gotcha. I want to talk about the crypto market at large. We are certainly in a bear market, there are macro factors affecting all markets right now, all assets. What is your take on what’s happening? Have we hit the bottom and when do you think we start seeing some recovery?
- Sure, so like Raoul Paul says, “crypto is macro, macro is crypto.” I think that basically what happened from 2000, basically March 2020, post kind of initial lockdown was we had basically massive increase to the global money supply and the Bitcoin price became a proxy for that. A lot of people confused that for, “is it an inflation hedge?” And really what’s happened over the last kind of two and a half years is we’ve seen a direct correlation in the short term between the price of Bitcoin and Ethereum for the most part and the money supply in the US and maybe in a couple of other countries, but mostly in the US. And obviously as the money supply increased dramatically and the expectations that the money supply would increase persisted, the price of crypto ramped. That’s also a function of the, kind of the exponential growth in usage, right? The network effects associated with, you know, whether it’s stocks, in the case of like Netflix and Tesla’s huge network effects in their business or something like cryptocurrency that will be reflected in the price. So that if something is basically gonna sap up money supply, so then it has network effects, it’s gonna sap it up even faster, right. Which is why, you know, the growth and the price of Bitcoin and Ethereum has been dramatic through, you know, early this year. And I think now we’re seeing the opposite where in the first half of this year, there were expectations that the Federal Reserve was gonna decrease the money supply and we have seen that. We’ve seen the fastest credit tightening in history over the last nine months. Literally in history, okay. Not just the Fed, but the banks and the bond markets doing what the Fed was unwilling to do late last year when inflation was outta control. But now the opposite problem is on the horizon, right. So last month we saw inflation actually come down month over month. The overall 12-month inflation number’s still over 8% but when you look at the print from June to July, it actually fell. So we’re at a point now where things have… The tightening has been so fast, so swift that if something doesn’t change, we’re gonna be in a dis-inflationary environment where trailing 12-month prices have fallen dramatically this point next year, in my opinion, okay. And it’s not a risk that people are really talking about because it’s not obvious because most of what we hear in the press is kind of trailing indicators for things that have happened weeks ago. But if you look at what’s happening right now. Right, we had a PMI prints, Purchasing Managers Institute, which is basically an overall barometer for supply chain, that basically says we are either in recession, have been in one, or are basically by every definition about to enter one. And I think it’s the former, I think we’ve been in a recession for a quarter and a half. And I think this recession will go on probably until the end of the year. And you’ll see, basically, sorry for the long-winded answer, but I’m getting to the point which is, you’ll basically see the Great Pause from the Fed. What is the Great Pause? That’s when you’ll hear something to the effect of “It’s fantastic to see “that these dramatic rate increases that we’ve done “have had the intended effect of slowing price inflation, “blah, blah, blah, blah, blah. “Congratulate ourselves, blah, blah, “congratulate ourselves, blah, blah, blah,” which actually in English means “we’re act… “we’re in a recession now.”
- Yeah.
- “And because the barometer that most of us use “to figure that out are un-understandable to Joe Public, “I don’t have to say that.”
- Right.
- “But we’re actually in a recession, “so we’re gonna stop those dramatic rate increases “and wait and see what happens. “Which means we don’t know what the F to do, “but we’re in a recession, okay.” I’m guessing that’s gonna happen in October. I thought it might be September. Maybe, I’m guessing probably more likely October. And at that point, right, I think it’s game on for risk on assets again. And I think going into Q1, you could see, you’ll see a lot of volatility anyway, just ’cause of the merge with Ethereum. But I think it’s really gonna be game on for equities and crypto as the money supply starts to increase dramatically as a result of the Fed pause and expectations in the bond market that we’re gonna get back to the kind of downward channel that interest rates have been in for the last three decades.
- Yeah, I think that makes sense. And it’s along the lines of, I’ve personally been tracking and I’m like, the midterm elections are coming up. Look, Presidents have used the Fed as a weapon sometimes or as a tool, I should say, and we could see, like you said, some pausing there and then maybe the markets get optimistic and then they start QE again sometime next year, who knows?
- Yeah, markets like political stalemate because it eliminates uncertainty.
- Right.
- So having competing kind of powers in Congress and the White House is actually a good thing for markets in most cases. Except when the case where, you know, like when Trump is just lowering taxes and whether it makes sense or not, I mean, you know, markets like that. But that’s not, what’s gonna happen either way. So I think having, the potential for having, you know, a Republican-controlled or lack of democratic-controlled Congress, and another two years of a Democrat in the White House is actually appealing to markets combined with the fact that I think the Great Pause is coming. You know, it actually bodes well for 2023 and maybe even Q4.
- Yeah, and I wonder if you can talk a bit about the correlation, you know, we talked about crypto’s macro, macro’s crypto now, do you think there will be any deviation from that? That crypto would find its own path eventually, or this is how it’s gonna continue?
- Sure, so yes and no. I think there’s the utility of crypto, right. And then there’s the kind of market gyrations of crypto, which are reconciled in US dollars, right? At the end of the day one Bitcoin is one Bitcoin, fungibility aside. One Ethereum is one Ethereum. And you know, that’s always gonna be true and hopefully the utility of both increases over time, which means that the network effects could even potentially increase over time. Meaning the rate of adoption could increase. Even if it doesn’t, if it stays what it is now, that’s beautiful, right? It’s faster than, it’s growing faster than the internet itself. So that, we need that to maintain, you know, the value in the network over the next 10 years. But I think it’s not a foregone conclusion that’s gonna happen, but given, especially in Ethereum, with, you know, stablecoin adoption with NFT adoption, with DeFi adoption, the banking system. I’m very bullish on Ethereum and some of its kind of layer one competitors to continue to get those extreme network effects. I think Bitcoin as kind of a base layer of money and store value has the potential to continue. I’d like to see a little bit more emphasis on scalability and fungibility beyond just Lightning, but I’m not sure that’s gonna happen. But I do think we’ve got at least a few more years of network effects in both, probably longer for Ethereum. And I also think that the Fed has no choice but to keep increasing the money supply at a rate that, you know, is faster than 2% per year. And at that point, that money has to go somewhere, and I think it’s gonna go to equities, I think it’s gonna go to crypto, and I think it’s gonna go to some degree to real estate. And that’s it. And I think crypto will continue to get an out-sized share as it’s place in mainstream finance grows faster than the existing, you know, systems and assets.
- Sure, and is it kind of, I know you mentioned there Bitcoin, there still needs to be, it still needs to be some better scaling solutions, but is it almost that Bitcoin is on its own path in a way where it’s competing with gold and maybe once it takes more of gold’s market share, then there could be some sort of deviation and maybe the markets follow, all coins follow it or not, I don’t know.
- So I think I could foresee a model where in 50 years, or even 25 years, we kind of reverse this idea that if Bitcoin becomes the base layer of sound money, but we still use dollars, it’s okay, “what is a dollar worth? “How many Bitcoin is a dollar worth?” That’s the opposite of the way we think now. That makes sense to me at some point. That’s when the network effects have gotten to the point where it’s ubiquitous, everyone has it, everyone understands it, everybody knows that when I say one Bitcoin equals one Bitcoin, it’s intuitively obvious to everyone what that means. And it just doesn’t mean that I think everybody’s stupid, it means that, “hey, we, we’re not making more of it.” Whereas with the dollar, $1 today is not $1 tomorrow, right. In 365 days, right now, $1 is worth at least 10% less. So, I think there’s gonna be this shift in mindset towards Bitcoin or something like it as the base layer of the monetary system. Even if we’re transacting in dollars, euros, RMB, maybe yen, which will probably be the big four on planet earth. And ev… Maybe pounds and Swiss francs. But they won’t be like really that important. I think there’ll be four or five important world currencies with something like Bitcoin and gold at the base layer.
- Hmm. I’m excited at the idea of that, where central banks use Bitcoin as a reserve asset, similar to gold. That would be amazing. I wanna talk about the Ethereum merge upcoming next month. Wanna get your thoughts. I know you had some price predictions. I think I believe for the next bull market of like around 40k.
- Yeah.
- Tell me your thoughts about it. What do you expect from this merge? Will it be positive? Could we see a market rally as a result?
- Yeah, if Ethereum works, I don’t see how it’s price doesn’t explode. It’s not financial advice, I’m not telling people to go put all your money in Ethereum. But on the other hand, independent of the financial advice, I would say it’s becoming deflationary. The applications are exploding and increasing every day. Adoption is increasing every day. The scalability of the system will improve with the next generation of improvements, post migration to proof of stake. A lot of investment funds that can’t hold Bitcoin because of these ESG environmental issues will have no problem investing in Ethereum. Now I’m not opining on what I personally believe in terms of like all this ESG stuff. Some of its nonsense, which is true.
- True.
- My opinion doesn’t matter. The reality is that BlackRocks of the world will not invest in something that has environmental concerns, right. A lot of these companies have, are, you know, divesting of their oil and gas investments. Now again, I’m, it may not make sense, but that’s the reality.
- Yeah.
- Okay, so I think that we’re at a point now where, Ethereum is really setting itself up for a massive run.
- Hmm.
- Massive run. I wouldn’t be surprised if there’s a pullback and, you know, post merge a little bit of sell the news, buy the rumor kind of stuff. But it just, look at the basic math. It’s, you know, the amount of… The fact that no new Ethereum is going to be distributed because we won’t be doing proof of work anymore. You know, some Ethereum, well, some will be given to validators, but not nearly in the quantities that it’s given out to minors. Eth will be burned via the 1559 upgrade, which has already been happening. And this is gonna continue unabated. And so the supply goes down, the usage goes up, the number of users is going up, do the math.
- Yeah.
- Something has to give. Well it’s demand has to give, right. And so if demand is the function, the price is gonna go up.
- Yeah, I’m excited for that. I’m certainly an Eth-holder and excited to see and hope everything goes well with the merge and hopefully the market rallies behind it. I’m looking forward to that.
- Yeah.
- I wanna get your thoughts on. Well, actually, before I get there, because you mentioned BlackRock and I’ll jump to that question. We just saw BlackRock make a major move, partner with Coinbase, they launched a Bitcoin spot trust. And to your point about ESG, they literally made some, a press release the other day, talking about this and how energy web and some other solutions that could help with the Bitcoin ESG concerns could be leveraged. It seems like they could make a push to start their own mining company or acquire a minor or help change the industry to move to more energy conscious or whatever you want to call it, right. What are your thoughts on big players like this and how they could impact Bitcoin mining?
- My thoughts on this are that everybody in the woke, you know, ESG community backed themselves into a corner.
- Hmm.
- They see what’s happening in Germany now, which is an absolute unmitigated disaster. Germany’s been arbitrage on effectively cheap energy from Russia for decades. And that party’s over, and all of a sudden the predictions are that we could see 800% increases in fuel costs in Germany over the next year. That’s in, that’s incredible, I mean. That’s hyper-inflation by every definition for a company, for the most stable economy, maybe in the world. And so we backed ourselves. We, they backed themselves into this kind of ESG-woke stance, which never made any sense. It never did. It was never, there was never a direct correlation between their perspective on this and any kind of fixes to climate change or resource consumption, or the cost of solar, the cost of nuclear, the viability of nuclear. There just never was. And there never will be. And so now the question is, how are they gonna get out of this mess that they’ve created for themselves very quietly and with new terminology that makes them look like they helped, or like the winners, or, you know, something that allows them to save face, basically. And that’s what’s gonna happen.
- Hmm. With the likes of BlackRock entering the market, and it’s, you know, it’s interesting that it’s happening in the bear market. Do you expect that we’re gonna see other big institutions also throw their hat in ring maybe this year or next year?
- I think there’s tremendous interest right now on crypto because of this pullback in the institutional world. The gyrations are a little different in that world versus just retail where it’s, you know. Retail is very much a herd mentality for better or worse. And there are instances where it’s better and there is instance where it’s worse. But institutional mentality is more about risk reward and, you know, at these price levels, you know… Do I see 70% downside to Ethereum or Bitcoin? Probably not, but it’s possible. But I also, I see, you know, very reasonable chance of, you know, 20X upside on Ethereum and 15X on, maybe 10X on Bitcoin over the next, you know, three years, three to four years for both. And so that’s a great bet with the right allocation and institutions are looking at this timing and going, “yeah, this is super interesting, “structurally, how do I do this?” And these are the conversations that our asset management team has every day.
- Bill, you have a lot of experience in government. You worked with the government. You were also part of the internet boom. You were at Netscape, you founded companies and so forth in the internet boom. And now we’re in crypto, of course. How do you think the United States is doing when it comes to regulations? ‘Cause there seems to be a lot of ambiguity, a lot of confusion, SEC, CFTC, who’s doing what. The treasuries doing their own thing with Tornado Cash and privacy. I wanna get your take and perspective, given your history and accolades, on what’s happening now.
- Sure, well, first of all, it’s not as bad as everyone thinks it is or everyone might think it is. I think in the US, we actually have a lot of clarity in most things.
- Hmm.
- Meaning we know what a bank can do, we know what a money transmitter can do, we know what a qualified contract participant can do for commodities, futures, transactions. We know what a security’s offering is. Now where we probably need more clarity is what is a security in the crypto space. ‘Cause they’ve tripped over themselves at the SEC a few times on this, themselves. And the fact that they won’t actually say these listed assets are securities, these listed aren’t. I don’t… Resources maybe is the problem, I don’t know. But I, you know, they named a couple of assets as potentially being securities in a personal suit against an employee of another company and that’s the closest they’ve ever come. That was a bizarre approach.
- Very weird, yeah.
- To doing that. So that’s probably the one area where I think we, in the US in particular. I think in other countries they don’t have this problem. In the US in particular because we have such a narrow, you know, traditionally… I’m sorry, traditionally broad definition of what a security is and what a security’s offering is. Other countries don’t necessarily apply those standards to crypto the way the US is. And so I think that’s the one area where most of us in crypto would like a lot more clarity. I think there’s still a hole in American instability to be able to short cryptocurrencies, get access to leverage. That’s because Bitcoin, Ethereum are probably, you know, commodities the way, you know, our government has defined it in the US. And as such, you know, leverage and shorting now falls the CFTC and the CFTC isn’t very good at retail.
- Mm hmm.
- Traditionally they’ve just not had, there hasn’t been a need because shorting and leverage for most retail falls in the, you know, has been a securities transaction, right. And so that’s probably… We know what the requirements are to do it, it’s just not tenable for most companies to get into that market. That’s why it’s almost impossible for the average American to short Bitcoin right now. I would challenge the average American to go short Bitcoin right now, they couldn’t do it.
- Yeah, or go long. Right.
- Well go, well, you can buy Bitcoin spot. Sure, there’s a hundred places to do that. But I’m saying if you really want to bet against Bitcoin legally in the United States right now.
- Yeah.
- 95 plus percent of the public can’t do it. And there’s something inherently wrong about that in a free market. And so that’s, those are probably the two issues that I think we have in the US that need to be worked out. What is the security and what isn’t a security and not just give us broad definitions, but literally list them out, someone, right. And then two, how in a commodity-based crypto market, do you access this idea of leverage, shorting, you know, things that are very definable for retail and securities markets.
- So do you feel the SEC needs to provide an update how we test for crypto or have a crypto test, so to speak, given that there’s never been anything like this, like a globally.
- Two different questions. Yeah, you asked two different questions. Updated how we test? No.
- Okay.
- That didn’t come from the SEC, that came from the Supreme Court. So updated crypto tests? Maybe, but again, it didn’t come from the, it didn’t come from the SEC, it came from the Supreme court, so. I would prefer that Congress address this, ‘Cause look at the end of the day, the SEC doesn’t make rule, they don’t make laws.
- Right.
- They interpret laws into rules and for the lack of a law to interpret, they make it up. They’re at liberty to do that until a court or Congress tells ’em they can’t do it via the checks and balances we have. Unfortunately, we’re in a mode right now where the checks and balances mostly ignore what they do.
- Yeah.
- The reality. Now I’m not saying that’s good or bad, it just is.
- Yeah.
- Yeah. But it is mostly unfortunate because I do think that they’ve, in many cases, usurped that power and it’s not just, I’m not picking on the SEC. I mean, I think the CFTC should have rules for retail for basically shorting and margin trading and leverage. I think the CFT, I’m sorry, the FinCEN, which is treasury, way overstepped their bounds with Tornado Cash. So, and again, those aren’t laws that they’re enforcing. Those are rules that they’re making up by interpreting law. And the only checks and balances on those processes are Congress and the Courts. And that’s very expensive for all of us to leverage, right. And so we need, if anything, we need better checks and balances. But in the short term, I’m more concerned about the issues I mentioned. Probably more even CFTC-related than SEC-related.
- Interesting. I recently interviewed Congressman Tom Emmer, it was actually last week.
- Oh, it was great.
- Yeah, and you know, his thing was Republicans, when the midterms, that he will have the gavel in his hand to then take action against the SEC. It’s getting a bit political, but it’s interesting that might be coming soon, almost…
- I don’t really look at it as political. It’s what I said before, right. I mean, the SEC does not make laws. Right? Emmer and Congress, they make the laws as representatives of the people. The SEC is not there to be a representative of the people. They’re there to implement the laws as they relate to securities, right. And the exchange of securities and the issuance of securities in the United States. Now, when the law is not clear as to what their writ is, within a certain degree of freedom, they’re at liberty to make it up, unfortunately. And they often do, right. For example, in treasury, FinCEN arbitrarily decided that, you know, Bitcoin was e-money and virtual currency by the definition of their e-money rules that they made up years ago, they just made it up, you know. I would’ve preferred to have seen laws, you know, passed that they were implementing or done nothing because they had no writ to do anything in that space. None. They just made it up.
- Interesting. And that’s where I’m hoping, you know, President Biden’s crypto executive order helps bring all these branches of government and regulators on the same page ’cause to your point, FinCEN is calling, let’s say example, XRP, a virtual currency back in the day, the SEC now sues ripple saying it’s a security. It’s just all over the place. And it, the folks at did CFTC are saying, “no, it’s not a security.” It’s just all over the place, right.
- I don’t think the executive order can do that. You know, I think amendments to maybe something like Dodd Frank and you know, or a crypto, you know, financial engineering version of Dodd Frank, I don’t know the right terminology, but I don’t think one person should be able to arbitrarily say here’s an executive order on what crypto is, what a security is. That’s I think they can address some of the mining issues and they can basically, you know, create task force, create a task force for this, a task force for that. But they can’t just basically come in and change laws. And that’s a good thing, so.
- Yeah.
- But like I said, I think there’s a lot of clarity. Like we know by and large what licenses we have, what registrations we need, what type of compliance oversight we need. It’s just those few nuances of, I mentioned about, you know, which assets are securities, right. How do I basic, for those that are commodities, if I wanna deal with retail, how do I enable a consumer to short Bitcoin? How do I enable them to get a little bit of leverage to, you know, to be able to short or whatever. And so things that they can already do in equities, right. But other than that, I think we have reasonable clarity.
- Yeah, I think certainly we made a lot of progress and to your point it’s a lot of issues around the SEC. All right, Bill, not financial or investment advice. Next bull cycle, 2024, whatever it is, right. Do you have a price prediction for Bitcoin and Ethereum?
- Well, unless the kind of channel that I look at for network effects and adoption changes, we should clearly be at, you know, within five years at somewhere to 150, to 250,000 Bitcoin. And at that point we should probably be at something like 40 to 50,000 Ethereum.
- Hmm.
- And, you know, I suspect there’ll be more of these pullbacks and you know, we’ll get there and pull back and maybe, you know, just like we have multiple cycles. But I’m basing that on what I said earlier around, you know, the changes to the money supply, the network effects, the use cases, particularly for Ethereum, more institutional money coming in, having another big retail boom, which maybe gets us to half a billion users as opposed to a hundred million. All of that should, in my opinion, get us there.
- Final question here for you. If you could create your own metaverse what would the theme be about.
- Peace and love. That’s it, anything in those two.
- So would it be like, I don’t know, Woodstock or something?
- Sure, why not? But you could define your own Woodstock.
- For sure. Bill, a pleasure chatting with you. Thank you so much for joining me, today.
- Absolutely. Pleasure to be here, thanks for having me.