Crypto's Price Correction Isn't Killing the Industry High

You should buy crypto in amounts you're not worried about, and sell it whenever you start thinking about it."

At least that's Blockchain CEO Peter Smith's stance on investing in cryptocurrency, a take issued during just one of a dozen or so panel discussions at Yahoo Finance's All Markets Summit Tuesday. Focused solely on cryptocurrencies, the one-day event, curated in part by CoinDesk, paired Smith with Chain CEO Adam Ludwin, who agreed this wasn't exactly a bad investing philosophy.

The comments, while perhaps amounting to 'Investing 101' advice, were notable for their contrast to the "just HODL" movement, an ethos propagated by early investors that has largely encouraged the holding of cryptocurrency – no matter the ups and downs.

But that's not to say that the panel, as well as the day's event, didn't showcase just how captivated investors are with cryptocurrency these days.

Smith told attendees:

"There's probably never been more hype about a technology or industry than ours."

And numbers from a survey Yahoo undertook seem to bear that out.

According to Yahoo editor-in-chief Andy Serwer, 40 percent of respondents have bought cryptocurrencies over the past year. Yet, in the same survey, about half still believe they may be a fad or even a hoax.

Both the hype and this confusion has caught the attention of various regulators – two of which, the CFTC and the SEC, were called before a Senate hearing on cryptocurrency just a day before the event. As such, the hearing provided ample fodder for the speakers, many of whom saw the regulators' remarks as a positive for the fast-growing industry.

Speakers touched on the plethora of new investment vehicles and tools, even as some spoke out about what they feel is the nascent state of the technology.

"Usually nascent technologies out of the lab don't get this much attention because there's no way to profit off them," said Ludwin. "It's good to never lose sight of that."

He added:

"You have a capital markets phenomenon overlaid against a very early technology … so time will tell whether this intense capital markets thing around it stunts the growth or accelerates the growth or stunts and accelerates back and forth, which has sort of been the course so far."

More sophisticated options
But caution aside, much of the focus was on products, including hedge funds, derivatives, futures and initial coin offerings (ICOs) – topics that were all widely discussed during the day's event.

For example, Barry Silbert, head of crypto investment conglomerate Digital Currency Group (DCG), was there to tout a new fund announced Tuesday by Grayscale, a DCG subsidiary specializing in public markets vehicles offering cryptocurrency exposure.

The fourth Grayscale product, the Digital Large Cap Fund is designed to give investors exposure to the five largest cryptocurrencies based on market capitalization, and it joins the ranks of a whole slew of hedge funds that have launched over the past year to lure more institutional investors.

Not only that but derivatives, futures and ETFs were also mentioned several times.

Bitcoin futures may have made a debut of two large traditional exchanges, CME Group and Cboe, at the end of last year, but there's talk that more could be on the way.

According to Karan Sood, the CEO of Cboe Vest, the investment management arm of Cboe, the launch of futures has parlayed into more interest from Cboe's institutional clients.

Speaking to the combination of traditional tools and the crypto market, Sood said:

"To marry those two gets us all excited."

Cboe also seems excited about the idea of bitcoin ETFs, filing with the SEC to list six in one week at the end of December. Yet, no ETF has been approved so far. And as the SEC has been reluctant to accept the crypto ETF notion in the past, several speakers voiced pessimism that the product would be seen soon.

"A more likely thing is the continuation of the derivative aspect, because at least you have oversight from the CFTC on derivatives, and that’s how you were able to get the first products out," said Kathleen Moriarty, a partner at Chapman and Cutler LLP.

Yet, Sood said retail investors are still predominantly driving interest in these sophisticated products. And as such, regulators are doing their best to keep up.

Wait up, innovators
On hand representing this group was CFTC commissioner Brian Quintenz, who spoke about how regulators are still trying to get their bearings in the crypto space.

Over the past several months, the CFTC has made headlines on multiple occasions for the role it played in jumpstarting the bitcoin futures market by overseeing a number of regulated products, and Quintenz didn't exactly temper the mood Tuesday.

"One of the other takeaways from yesterday," said Quintenz, speaking to Monday's Senate hearing, "was you didn't hear either chairman say ‘No, absolutely not, this is not safe, we must stop this at all costs.’ No one said that."

He continued:

"We don’t want to be saying no to innovators."

Having said that, though, Quintenz did elaborate on where the CFTC and other regulators would be focusing some of their efforts.

According to him, regulators are looking at the difference between a futures contract and a sale. If the delivery of an asset happens within 28 days, he said, it's a sale and not a future. As such, the CFTC is currently looking for input on how to protect investors from what he called "look-alike" futures contracts.

Yet, while many speakers tipped their hats to the regulators for their seemingly positive outlook, Perianne Boring, the president of Chamber of Digital Commerce, a Washington D.C.-based advocacy group for cryptocurrency, said the regulatory landscape remains a mess in her eyes.

The CFTC is regulating cryptocurrency as if it's a commodity; the IRS calls cryptocurrency property for tax purposes; and the SEC sees some cryptocurrencies as securities.

Because of this, she believes cryptocurrency entrepreneurs might leave the U.S. for not only places with lower regulatory hurdles, but those with a more clear regulatory framework for the nascent industry.

"In three years, we’ve really turned this around, to the point where we have a Congressional blockchain caucus, a group of senators coming together to say we’re going to protect this industry," Boring continued.

But she and many others are hoping the cryptocurrency industry can come together to find ways to self-regulate so that stricter regulatory action isn't pursued.

"We need best practices so people can delineate good from the bad," she remarked.

Proceed with caution
Yet, that's a tricky thing to do, especially since even experts in the industry have trouble figuring out what end is up in the space.

Alex Sunnarborg, a founding partner at Tetras Capital, went through a list of the ever-expanding list of available cryptocurrencies during his fireside chat, highlighting the growing number of token products, which have primarily differentiated themselves in name only (SAFT, ICO, TGE, ICBM).

All these new names have made it challenging for investors to differentiate tokens in an effort to decide which ones to invest in. And not only that but vetting cryptocurrencies and crypto tokens requires some amount of technical proficiency in looking at the teams, the white papers and the economics of the system.

Brad Garlinghouse, CEO of Ripple, whose native cryptocurrency XRP has seen meteoric growth over the past couple months, also commented on the troubles of assessing the token industry. In particular, he said many of the tokens he sees don't have much purpose, and that as the industry corrects from the hype, "there's also going to be carnage along the way."

With that, Boring reminded the audience they shouldn't invest in things they don't understand.

"For the retail investor who wants to get involved in the blockchain ecosystem, whether through an ICO or through other means, you really need to educate yourself," she continued. "For the first time in possibly history, you can have control – but with that increased amount of control comes an increased amount of responsibility."

Having said that, though, Boring is still a true-blue crypto believer, telling the audience:

"I have more money in cryptocurrencies than in any formal retirement fund."

Nik De and Michael del Castillo contributed reporting.

Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in Blockchain, Chain, Grayscale and Ripple.