Nexo’s Antoni Trenchev on CNBC Weighing in of Libra, BTC’s Intrinsic Value and Tokenizing Gold

Dear Nexonian,

Nexo’s managing partner Antoni Trenchev back at CNBC’s Squawk Box Europe for a heated discussion with Julianna Tatelbaum and Steve Sedgwick about the Facebook’s Libra project, the intrinsic value of cryptocurrencies and how Nexo is shaping a quickly tokenizing world.

Here are the key takeaways:

• Libra has an amazing value proposition and has a lot of potential if done right: Instant adoption of crypto by potentially 4 billion people; Low cost cross-border payments with near-instant settlement; Social inclusion and participation in Western-like wealth creation for 2+ billion of underbanked people across the globe; The regulatory pushback has been perhaps underestimated and what the final product will look like remains to be seen.
• Bitcoin (BTC) has outperformed any other asset during the past ten years and both retail and institutional investors cannot afford to NOT have it in their portfolios
• Prudent investors should deploy risk- and money-management strategies and have at least a small portion of BTC in their portfolio, as BTC is an uncorrelated asset that regularly delivers asymmetric returns and improves the risk-based returns.
• Nexo has processed more than $1 billion on the platform in just under 18 months and has seen an influx of institutional players entering the space
• Instant Crypto Credit Lines™ against tokenized gold are an important step in the tokenization of everything which bring the total addressable market for Nexo into the trillions as stocks, bonds, commodities, real-estate and fine art are brought on-chain.

Watch the full interview or read the transcript below:

Julianna Tatelbaum:

Let’s bring in Antoni Trenchev, co-founder of Nexo, to weigh in on the latest when it comes to Libra. Do you think that Facebook badly miscalculated, in terms of the regulatory push-back they’re seeing?

Antoni Trenchev:

I think it’s a classic situation of glass half-full, glass half-empty. What is for sure that it has gotten much more complicated than the last time we talked about it when I was on here. I think that the value proposition of the project is still there - low-cost cross-border payments that settle almost instantly, I think the world is going to profit from a cryptocurrency that is backed by a basket of currencies and short-term government securities. Obviously, there are few clouds coming up, and we’ll see after those clouds clear how exactly the product is going to look. But if it comes to be, we at Nexo will instantly on-board it for our loans and as a payment instrument that we accept. I try to be optimistic, but there was some miscalculation as to the regulatory push-back.

Julianna Tatelbaum:

When you talk about things having become more complicated since the announcement of the launch, what’s actually changed?

Antoni Trenchev:

Well, it’s all about perception. I think that people in my space, I personally and we at Nexo expected the Libra leadership and Facebook to have done the proper legwork of securing, if not consent, then at least a nod from the regulators, because that’s not some mom-and-pop shop doing something, this is Facebook with a user base close to 4 billion. So, this is a massive, massive grand project, which obviously has to comply with AML and KYC procedures, and if you are against that, then you’re on the wrong side of things.

Marcus Morris-Eyton:

I think what Facebook is trying to do here is to clearly replicate some of the success you’ve seen with WeChat and Alipay in China, and Libra is clearly their instrument to do that. As you say, they have a big advantage with the install base that they have of nearly 4 billion customers across the globe. But they have to be very careful not to step on the central bank’s toes and their ability to influence monetary policy.

Steve Sedgwick:

How do you not step on the central bank’s toes? It’s a really good question, but I don’t know how they cannot step on their toes given the install base, I don’t know how many Facebook users are there, but I know it’s over a billion.

Marcus Morris-Eyton:

I think that’s why this is very different to other cryptocurrencies you’ve seen launched because this will be far larger in terms of potential scale. So, the influence it potentially has is much greater than many of the other cryptocurrencies you’ve seen launched, and I think this is why you’re seeing some of the regulators push back.

Steve Sedgwick:

Why would central banks allow this to happen? I mean we had a central banker in here earlier, Stefan Ingves from the Riksbank, and I got the impression that central banks would have a response, but it would be them leading a digitalization of money rather than the private sector.

Antoni Trenchev:

Well, that does make sense. However, we’ve got to think of the composition of Libra as a cryptocurrency, it’s not going to be akin to Bitcoin, Ripple or Ethereum where it has little intrinsic value.

Steve Sedgwick:

This brings me back to the conversation I had with a property developer around this desk a couple of years ago, and that lady will remain nameless, she tried to explain to me why it was great to buy this property in cryptocurrencies. I said: well, I don’t understand how you can pay your bills and your builders in cryptocurrency, oh no, it’s fully convertible to dollars. I’m like: well, why would anyone change their dollars to crypto back to dollars again? What’s the point of the crypto if it’s backed by a fiat currency?

Antoni Trenchev:

Well, a few things. Bitcoin is the best performing asset of the past decade.

Steve Sedgwick:

It’s a volatile performing asset, it’s a sure recipe for people who don’t know what they’re doing. Whenever people ask me about Bitcoin, I always say to them, do you understand the product? And they say no. Then the second question I’ll say, can you afford to lose the money? And they variably say no. So, I say, well, then these are the two criteria, you shouldn’t touch Bitcoin.

Antoni Trenchev:

Well, that’s a risk management and money management and a strategy of how everyone addresses that in their personal portfolio.

Steve Sedgwick:

Do you know what Bitcoin is worth?

Antoni Trenchev:

I know that if you take the longer view over the past decade, it has outperformed any other assets, hands down.

Steve Sedgwick:

When it went down from 12,000 to 8,500 or the 8,311 that it is now, did you understand why it went down?

Antoni Trenchev:

Well, everything that goes 4x in a few months is bound to have a correction.

Steve Sedgwick:

What I’m saying is that people don’t understand why it’s moving one day to the next, up or down. I’m not an advocate for it and I’m certainly not a detractor. If you don’t understand why something’s moving, why would you touch it?

Antoni Trenchev:

You would proceed with caution because having BTC in your portfolio actually improves your Sharpe ratio by a serious multiple and this is a measurement of risk adjusted returns. For instance, at Nexo, we also give you the means of holding on to your Bitcoin over the long-term and accessing the value of your crypto via loan, which could be in 45 different fiat currencies.

Steve Sedgwick:

That’s my next question. I know that you’re one of the leading instant crypto-backed loans providers. In the world of free money, why do we need a crypto-backed loans provider when there is money sloshing around at a negative rate? I had a central bank here with negative rates for his banks earlier on as well. Why do we need crypto-backed loans in a world where the private equity got trillions?

Antoni Trenchev:

Well, apart from the obvious reasons that we’re heading towards a disaster with the expansive monetary policy, but that’s a whole other topic — why we need a crypto lender is because the space is very vibrant, it’s moving, it is propelling innovation and there are a lot of people that hold on to their crypto and exactly so that they can take the longer view. We are there to provide them short-term financial instruments, which they can borrow against their holdings, meet their short-term liabilities.

Steve Sedgwick:

Your interest rates are much cheaper than other people’s interest rates.

Antoni Trenchev:

We go as low as 5.90% per year.

Steve Sedgwick:

So, you’re lending money at 5.9%. What is the lowest interest rates UBS provide?

Nick Nelson:

I’ve no idea, but I know that you can have negative rates in Switzerland?

Steve Sedgwick:

So, why would I borrow money from you at 5.9% when I can go to UBS?

Antoni Trenchev:

Because you get to keep your Bitcoin at the same time. It’s very similar to what UBS for instance is doing with Lombard credits against gold, where you can have physical gold, and put it with UBS, they would then give you cash and you can go on and buy even more gold. We’re now doing the same thing with tokenized gold - we do that with all sorts of cryptocurrencies. It’s just a different product that people are utilizing.

Nick Nelson:

On that point, if the regulators want to know how you’re creating leverage, can you track that? Can they see that? Can the governments and the central bank see how much leverage has been created?

Antoni Trenchev:

We actually encourage under-leverage because if you have $10,000 worth of Bitcoin, we only going to give you 50 cents on the dollar. So, we encourage under-leverage, much like what you guys do with gold.

Steve Sedgwick:

We’re going to leave you there. Great conversation. Thank you very much indeed. Nice to see you, Antoni Trenchev, co-founder of Nexo.