Crypto investors up trading activity amid bitcoin, ethereum volatility

Yahoo Finance's David Hollerith joins the Live show to discuss bitcoin dropping below $30,000.

Video transcript

BRIAN SOZZI: Welcome back to Yahoo Finance Live. Overnight, Bitcoin dropped below $30,000 for the first time since July of last year. For more on this, let's welcome in Yahoo Finance crypto reporter David Hollerith. David.

DAVID HOLLERITH: Brian, it's been tough out there for a crypto investor. So Bitcoin briefly crossed below $30,000 last night. It has recovered since. It's sort of dangling just below $32,000. Still at its lowest point since July 2021. Ether also bottomed out in a similar period. It's trading around $2,420 per coin. Things aren't looking good.

From the OTC desks I've spoken with, there's actually been a flurry of buying demand in the last 24 hours. And that's mainly been in Bitcoin, Ether, and the stablecoins Tether and TerraUSD, which is another smaller stablecoin. I'll get into it in a little bit. So what I've heard from the desk is that they've had five times the average daily volume they typically see.

Now, the important thing to remember here is that it doesn't necessarily mean that we're seeing sort of a recovery of the market. I mean, we could be at this point, but, really, what this means is OTC desks are sort of sophisticated trading outfits that mainly cater to institutional investors, not retail traders. So what's going on right now is that a lot of institutions are taking advantage of all this volatility, and they're sort of getting in on one side or the other to the trade. That being said, they've reported that there's been sort of a surging expectation for downside in May and June.

Open interest in Bitcoin and Ether puts or shorts to borrow the cryptocurrencies and sort of sell them at a cheaper amount are quite high, approaching the highest level year-to-date, or to sort of expire in May and June. So things aren't necessarily looking bright yet. And then, also, in stablecoins, as I had mentioned, TerraUSD. It's a smaller subset of stablecoins that has sort of risen to prominence because it guarantees a lending yield that's much higher-- magnitudes higher than a savings bank account.

Since the weekend, it has begun to de-peg from its one-to-one value with the US dollar, and that's looked like trouble. So Terra is-- because it's used as such a strong lending asset, it's connected to a lot of derivatives trades. So a lot of market participants, while they haven't really figured it out yet, think that a lot of the downside, a lot, I say-- some part of the downside from Monday had to do with Terra's, USDT's loss in value and how it's impacted these derivative trades we're seeing on both sides.

BRAD SMITH: And so, David, I mean, clearly, we're not hearing or feeling the Bahama breeze in your voice this week, as compared to a couple of weeks back. But if you look forward from here and the prospects for Bitcoin, for cryptocurrency, you know, where should people be placing a lot of their attention, especially as we're keeping track of some of the publicly-traded entities that are also either custodians in nature or are holding Bitcoin on their balance sheets?

DAVID HOLLERITH: Yeah, that's a great question. I'm not going to offer financial advice, and I definitely won't say that these stocks are cheap, or something like that, because it's really hard to tell how far the market's going to go, given the dynamics. But I think that the overhanging thing for-- besides the macroeconomic uncertainty, which obviously looks poor for the next couple of months for cryptocurrencies-- the overhanging thing is regulation and how, particularly in the US, laws can be passed so that institutional investors could potentially get into the asset class.

When I was in the Bahamas, sort of the story was there were a lot of very large institutional investors who were there. They were exploring sort of what the crypto sector has to offer. But in a large part, they cannot put their money into the asset class at this point, outside of venture investments. That's sort of why we're seeing such high venture investment still. So we really have to wait on our hands, sort of, until we see something like more laws being passed, which, obviously, that's dictated by the Congressional circus, if you will.

JULIE HYMAN: And maybe we have to wait for rates to stop going up also. That's what we're waiting for. That's also going to take a little time perhaps. David Hollerith, thank you so much. Appreciate it.