Michael Sonnenshein, Grayscale Investments CEO, joins Yahoo Finance Live to break down Coinbase's milestone success and the outlook for cryptocurrency.

Video Transcript

BRIAN SOZZI: All right, let's dive back into crypto and Coinbase. Michael Sonnenshein is the CEO of Grayscale Investments and is here with us now. Michael, good to see you-- so what are some of your takeaways from the day before yesterday?

MICHAEL SONNENSHEIN: It's great to be here. Well, first of all, a huge congratulations to Brian and the entire Coinbase team. I think they're really setting the standard for what I think is going to unlock a lot of blue chip crypto companies to come to the public market. I think this has been super well-received by the investment community.

I think it's likely to lift valuations across crypto companies. And on the heels of that, you may see a new wave of VC investment into crypto companies looking for kind of that next Coinbase, and then also hopefully inspiring a new generation of entrepreneurs to keep building within the crypto economy.

MYLES UDLAND: So, Michael, you know, it's interesting, because you're talking about the entrepreneurial side of the crypto market. I think from our vantage point covering public markets, everyone wants to know how much more entrenched large institutions, existing public companies will get with crypto. Do you see Coinbase as a watershed moment, in that it's telling big banks-- the water has been warm, right, but it's telling them that it's maybe even safer than they thought it was to really start ramping up client exposure, these sorts of things-- making markets, so on, and so forth.

MICHAEL SONNENSHEIN: I think it certainly is. Coinbase is really signaling to the market as a whole a certain level of maturity, a certain way of doing things the right way. I saw Brian gave an interview this week talking about regulation potentially being a threat here. But we also see it as an opportunity.

When you look at businesses like Coinbase, when you look at businesses like Grayscale, there's really an opportunity for us to continue to lead by working proactively with regulators. And from the legacy financial institutions, a lot of them are now really working, or in some cases scrambling, to make sure that they're developing products and services to be able to have cryptocurrency exposure for their clients and figure out ways of how to get involved.

BRIAN SOZZI: Michael, nothing goes up in a straight line. If there are a couple of factors that could trip up crypto's rise this year, what do you think they will be?

MICHAEL SONNENSHEIN: I mean, the one that always plagues me the most is just impatience. And that can come in a lot of different forms. I think it's important that we remember that crypto as an asset class, Bitcoin in and of itself didn't even exist 10 or 12 years ago. And so the fact that it has come as far and as fast as it has is really quite unbelievable.

We really think that it's a once in a generation opportunity that you see an entirely new asset class born. But we have a lot of work to do, and it's still just the beginning. We spend a lot of our time educating investors on the merits of digital currency exposure within their portfolios. And we also work to dispel a lot of preconceived notions about crypto.

We don't think people are going to be using Bitcoin to buy a latte soon. We try and ensure people understand that crypto is not a tool for doing nefarious things or for illicit activity-- quite the opposite. And so I think we're now just on the precipice of really seeing that mainstream adoption. And with Coinbase going public, investors really now have another opportunity to participate in the crypto economy, as opposed to prior to it, only really being able to access cryptocurrency directly-- whether that's through Grayscale products, or buying coins directly on Coinbase, or other platforms.

MYLES UDLAND: And, Michael, it was a big feature within Coinbase's S-1, and it's something that we've talked about before, which is the crypto market has cycles. And it has had many cycles. And I guess this would now be part of the fourth cycle within the market. On the other side, we see certain-- I mean, the ICO hype train, right-- that was kind of what ended up getting spit out the back in 2018.

What are some areas right now that you're looking at within the space broadly that to you seem a little in that vein? Is it the hype around NFTs? What is it today that feels like something that's riding on the crypto enthusiasm but might not have the staying power of, hey, I want to put 2% of a massive institutional portfolio in Bitcoin, something like that.

MICHAEL SONNENSHEIN: Well, NFTs may certainly be one of them. I do think that NFTs do highlight an important use case for digital assets-- things like provenance, and authenticity, and actually do, in many cases, solve some real world problems. But I'd say on the flip side of that what's also going on within the crypto economy is the emergence of a bunch of new protocols that are offering investors exposure to some really interesting areas of the market.

So for us, we're definitely seeing investors getting excited about privacy focused tokens-- things like Zcash and Horizon. We're seeing the confluence of digital assets and gaming with the rise of assets like Decentraland and their native currency, MANA. We're seeing decentralized file storage with the proliferation of the file coin protocol.

So I think that there are really some very, very interesting use cases that are emerging. And certainly, I think it's a good time for crypto to be exploring these other use cases, because investors now very much appreciate that it is probably wise for them to have that kind of core Bitcoin or core Ethereum position, but they also do realize that there are other diversification benefits for their crypto exposure to be exposed in other areas of the market as well.

BRIAN SOZZI: Michael, before we let you go-- do you think investing in crypto is safer than investing in stocks?

MICHAEL SONNENSHEIN: I think that crypto is not an investment that is appropriate for every investor. And we've long said this, and we will long continue to say this. You guys just talked about there being four cycles we've seen in crypto. It's gone through a series of bubbles and bursts.

And so we really think crypto is meant for investors that have longer term time horizons, can stomach the volatility, and that's not necessarily going to dovetail with everybody's risk tolerance. So again, not for everybody, but certainly presents an interesting opportunity.

BRIAN SOZZI: All right, we'll leave it there. Michael Sonnenshein, CEO of Grayscale Investments, always good to see you.