Cryptocurrency is still in the 'early innings': Analyst

BTIG managing director and Fintech analyst Mark Palmer tells Yahoo Finance what might come next following Wednesday's cryptocurrency sell-off.

Video Transcript

ADAM SHAPIRO: Mark Palmer is a managing director, as well as an analyst of fintech and digital assets, at BTIG. It's good to see you. And which is it? Is it the China crackdown that's going to forbid the use of cryptocurrencies in normal exchange? Or is it, you pointed out, some people were just taking their profits to pay their taxes?

MARK PALMER: Well, first of all, thanks very much for having me. I think it's important to note that there really hasn't been a new crackdown on cryptocurrency by the Chinese government. All we saw was a reiteration of bans that have been in place as long ago as 2013. Three Chinese government agencies came out and reiterated those bans as far as financial institutions trading or facilitating the trading of cryptocurrency is concerned. So that really isn't new news. You know, there's an awful lot of what folks in the crypto world called FUD, Fear, Uncertainty, and Doubt, that's out there. That's just part of it.

It is, I believe, important to note, though, that this year, tax day was May 17th. And what we have seen in past years is that, typically speaking, if there's been a run-up in the price of cryptocurrency and investors are sitting on big gains, then they're going to be facing taxes on those gains and often sell their cryptocurrency in order to pay those taxes. Now that's exacerbated a bit this year simply because the IRS is beginning to actually focus on collecting on some of those gains for the first time this year, the IRS has actually explicitly put on page one of the standard tax form, did you buy or sell cryptocurrency during the past year?

SEANA SMITH: So Mark, it sounds like you don't think that this is going to be long-term damage, then, for the crypto market, and we should see Bitcoin resume its trade higher.

MARK PALMER: Well, I think what you've seen here is an unwinding of a significant amount of leverage in the system. You know, what we were seeing in the last 24 hours was liquidations, which are part of that unwinding. From a fundamental standpoint, taking that leverage out of the equation provides more of a floor on which you can begin to see appreciation occur again. What I think is really important to note, though, bigger picture, from a secular standpoint, is that the wave of adoption from retail and institutional investors, it is really in the early innings still.

And what we're particularly interested in is what is happening on the institutional side. And, you know, we've seen for weeks now headlines about large institutions, whether those be multi-strategy hedge funds or big mutual fund complexes, that are ramping up to have DeFi and crypto funds. Those haven't even occurred yet. So the wave of institutional money, it hasn't occurred yet, but it's coming.

ADAM SHAPIRO: Well, Mark, those institutions are companies, actually, that will accept, for instance, Bitcoin-- Tesla up until recently. Doesn't this open the wound that if you're going to take crypto, you could get burned when you see such a dramatic drop? I mean, if you're giving me 80,000 worth of Bitcoin to buy something and then the next day, that 80,000 is only worth maybe 45,000, what's the incentive for companies just to continue accepting this as payment?

MARK PALMER: Well, I think it's much bigger than merchants' acceptance of cryptocurrency. I think that's an important development that's occurring. And, you know, we cover PayPal, and one of the things that we're watching closely is Paypal's effort to reach out to its merchants around the world and facilitate the increased adoption of cryptocurrency acceptance by merchants.

But what I'm really talking about is even bigger than that. It's about institutions that are trading in equities and fixed income and commodities and other asset classes, adding cryptocurrency as a new asset class to their mix. This means that some of the most sophisticated investors in the market are getting ready to put on trades associated with cryptocurrency. So that, in and of itself, could lead to much more significant demand, not only for Bitcoin, but I think for all of the cryptocurrencies across the board.

One of the things that we've seen is that there's a tremendous amount of excitement about what I know is proof of stake cryptocurrencies. These are cryptocurrencies in which the projects are being built on the underlying blockchain. And the cryptocurrencies are effectively the tickets for admission to those projects. Blockchain, in itself, is in its infancy, really, as it pertains to the building of these projects, many of which have the potential to disintermediate incumbent firms in the market.

So the concept of the value of these cryptocurrencies being driven by the growth of development of these projects is pretty interesting to a lot of institutional investors. And again, you know, that money hasn't yet really flown into the market yet.

SEANA SMITH: Hey, Mark. So when we take a look at the Bitcoin price, say, six months, seven months from now, when we're at the end of the year, what do you think that number is that we will be looking at?

MARK PALMER: Well, I will say that, you know, BTIG has a 12-month price target of $50,000. Our chief strategist Julian Emanuel has said that. You know, with that said, you know, to me, it's not so much about where the price is going to be at that point. The question is, really, how many more companies, institutions, individuals are going to be involved in the space? Because that's what's going to create the basis for long-term appreciation.