Crypto: ‘Institutions are being very cautious’ after sell-off, FalconX CEO says

FalconX CEO Raghu Yarlagadda joins Yahoo Finance Live to discuss the crypto industry's liquidity crisis and how institutional investors are reacting.

Video transcript

AKIKO FUJITA: Well, digital asset platform FalconX is seeing a silver lining amid all the crypto chaos David just described-- the company more than doubling its valuation following its $150 million Series D financing round. And joining us for more on the crypto space, we've got FalconX CEO Raghu Yarlagadda. And Raghu, it's good to talk to you today. We talk so much on the show about the impact on the retail investor who has invested in crypto, but I know you're focused on the institutional investors. What have the inflows been like?

RADHU YARLAGADDA: Yeah. Thank you for having me. I think from an institutional standpoint, largely the institutions are not taking directional bets. By that, what I mean is, a lot of institutions are leveraging market neutral strategies, like the basis trade, without taking a directional bet. The second thing is, everyone is watching the idiosyncratic risk that's in the system right now with the liquidity crisis triggering sell-offs, right. I mean, you mentioned about Three Arrows, Celsius, and the LUNA Terra as well.

So most of that liquidity crisis triggered sell-offs. It seems to have flushed out of the system. But for the other two or three weeks, institutions are being very cautious because it is taking a while for some of these dominoes to cascade out. Last, but not the least, crypto as a market is broadly trading in strong correlation with the risk-on assets, and we expect that correlation to be continuing for another two quarters.

BRIAN CHEUNG: Raghu, it's Brian Cheung here. I wanted to ask just about the platform itself. It's for institutional investors, not necessarily something that mom and pop can just sign up for. What makes your platform different? Who are the types of institutional investors that you're targeting here?

RADHU YARLAGADDA: Yeah. We focus on a very diverse variety of institutions, Brian, all the way from some of the world's largest hedge funds, prop shops, retail aggregators, and crypto native funds, right. I mean, so a very diverse set of institutions around the world. Now, the interesting thing, amidst everything, when everything about crypto is being questioned, we saw some of the highest number of institutions on board in Q1.

We saw some of the highest number of institutions engaged with the platform. So while everything about the crypto market is being questioned on one side, institutions are definitely cautiously optimistic for the mid to long run of crypto.

AKIKO FUJITA: I mean, what does that tell you about how institutional investors are looking at the space? I mean, it's not often that we tie sort of the macro environment to crypto investments directly, but we have kind of seen them move hand in hand.

RADHU YARLAGADDA: Yeah. Right now, the biggest thing that everyone is watching for is, like, the macro moves. Definitely the correlation specific to risk-on high-growth tech stocks is much higher, and so that is something that's being watched. That's number one. Number two, the cascades that we are seeing in the market for the last two months are an incredible stress test.

A lot of institutions are a bit concerned about the market infrastructure and how it held up. Now, the good news coming out of that is, like, institutions that are going to be standing out of this cascade are going to get much stronger, similar to what we've seen in, like, a dot-com connection as well. So any institution that survives-- the market infrastructure companies that survive out of this are going to be very strongly positioned for the next five, 10 years.

AKIKO FUJITA: Raghu Yarlagadda from FalconX. He is the CEO there. Good to have you on today. I appreciate the time.