Bloomberg Crypto Full Show (06/14/2022)
We are live from Bloomberg World Headquarters in midtown Manhattan on Matt Miller. And I'm Kelly Lyons. Welcome to Bloomberg Crypto. A look at the people transactions and technology shaping the world and decentralized finance. Coming up the crypto chaos shows no signs of letting up. Bitcoin continues its descent more jobs being cut while the fortunes of billionaires are vanishing as quickly as they were made. And the dual crises of terror and Celsius are shaping up defy in ways that may have serious repercussions for the sector. We'll discuss with investor my girlfriend who's been sounding the alarm on Celcius for months. And are there any bright spots left for crypto. We'll scour the market with venture capitalist Nick
Carter of Castle Island Ventures for potential opportunities. Looking forward to those conversations ahead. But first let's get a snapshot of the market because we know it has been several consecutive days of brutal selling for bitcoin actually its longest losing streak going back to 2019 with losses of now 3 percent. Today we're trading around twenty two thousand four hundred five hundred dollars or so. That is the lowest level going back to December of 2020. So if you bought Bitcoin from the start of 2021 onward and you're still holding onto it you have lost money. It's been really really difficult. It either is down about 1 percent as well. One outlier one standout to the upside today is Alana. It's up about 4 percent trading just
under 30 dollars. And then of course one can crypto company in particular we're monitoring is Coinbase cutting 18 percent of its workforce due to the crypto winter. That stock is down about six tenths of one percent. And we'll have more on that story in just a moment. But first let's get the take of some market watchers who have been viewing the action over the last two days
and trying to make sense of the mayhem. Macro conditions are unprecedented and a market decline. Everything goes down. Crypto has not really existed with this sort of macro backdrop. The institutional investor continuing to shy away from that massive class. It's not surprising that something that is as ephemeral as crypto would go down. There's just a lot of risk there. We are certainly nearing the bottom. Expect ups and downs especially before we get a better regulatory framework in place. I don't think people are going to basically abandon the whole concept of crypto currencies just because the market's down for a last couple of weeks. Let's kick off this whip with some
technical analysis. For that we go to Bloomberg's Abigail Doolittle Abigail Doolittle about the crypto plunge really is incredible. When I first started to look at the Bitcoin charts which is down 70 percent from its all time peak I thought it was going to be set up for another plunge. That's not the case. This is a monthly chart a long term chart. You can see an uptrend that tells you the long term buyers are in. We're looking at bitcoin relative to its 200 month moving average.
Those are the buyers who bought years ago back in 2010 2009 and they've stuck with it right now. We see that Bitcoin holding that support suggesting we could see a bounce. So maybe Bitcoin is close to the bottom. Maybe these last eight eight down days that's capitulation. And when we put it together with the fundamentals inflation as an inflation hedge of course also happening this is bitcoin relative to oil. So into 2021 Bitcoin outpacing oil. But then as
inflation really came into this story you see that oil has actually done much better than Bitcoin the overall trend down. However Kelly take a look at this. Bitcoin relative to oil finding support around the bottom. This trend channel it may just suggest that in the near term maybe the Fed meeting could be the impetus. We could see a pop for Bitcoin relative to oil. All right. So maybe some more optimistic signs in the technicals. Thank you so
much to Abigail Doolittle. But in another sign of the worsening crypto downturn we had Coinbase announcing today it will lay off 18 percent of its workforce following in the footsteps of other crypto related businesses that have recently cut staff. Donna Horwich Bloomberg cross asset reporter joins us now for more. So hold on obviously Coinbase is not alone. We've seen other firms doing this as well. It's emblematic. It's symptomatic of the crypto winter. Exactly. And that's what a lot of these companies have been citing. So Coinbase is just the latest. It's the newest one that we've been hearing from because if you'll remember it over the last couple of days we've also heard from Germany. We've heard from BLOCK Phi.
It's really a growing list of crypto companies that have been announcing either that they're laying people off or some sort of hiring freeze. Just a couple of days ago it was Coinbase that had rescinded a bunch of offers from a lot of people who had you know we all saw these headlines who had been deciding between working and traditional finance maybe or working at Coinbase. And then they went with Coinbase and had those offers to send in. And that was making a lot of weight. And a lot of them had splash already left their jobs already moved to this country. Painful news. This could also get painful for Michael Saylor at
MicroStrategy right. He's one of the most famous bitcoin evangelists. I think he spent almost three billion dollars amassing a war chest of the crypto for his company. And we're hearing now that he may face margin calls if it drops below 21000. Well that was the big fear. So I know yesterday amidst everything that was happening with the big sell off that we were seeing I had a lot of people reaching out to me saying this is something to keep your eyes out on. Still we had strategists had BCI chief for example coming out today and saying those fears really were overblown. We also had if you looked on Twitter Michael Saylor tweeting saying a lot of this is overblown that when he had created this strategy of buying that coin for his company that he was looking ahead for seeing that crypto can be volatile that bitcoin can be volatile.
I think he said something like he was hobbling through adversity which is just a term to say he's going to be holding on to these assets even during turbulent times. And we also had him telling Bloomberg that the company has ample collateral to pledge if necessary. All right Dana thanks very much for joining us on this. All of these challenges coming as a crisis at the Celcius lending platform causes fresh concerns of systemic risk in the crypto ecosystem. Sonali Basak has been tracking the meltdown. You know have been some signals here. You know news at Celsius is now rattling a market that has been trying to shake off the chill of a crypto winter. There is a hawkish fed red hot inflation mounting lawsuits investigations and also hiring freezes and job cuts. And let's not forget the implosion of the terra stable coin just
last month. The meltdown has now turned attention to decentralized finance projects that offer super high yields. Celsius is one of the biggest lenders in crypto. And a key player in the world to defy the largely unregulated answer to traditional finance. And on Sunday the company announced that it was pausing withdrawals swaps and transfers following weeks of speculation that would be unable to pay out the significant returns it promised on its products. The move effectively halted a planned. Form with registered entities across the globe and billions of dollars worth of digital coins that are management now while Celsius is a centralized platform with operations and staff that sets it apart from defy its deep involvement in the space is intensifying doubts about its own viability and raising the risk of contagion. Now rivals like
BLOCK By and next so took to Twitter in the hours after Celsius. This announcement to soothe nerves and next so went a step further in its efforts to project strength. It said it would offer to buy Celsius is remaining qualified assets and followed by tweeting that it said Celsius. A formal offer for that deal. Not sure now. Thanks very much. Natalie back there with some of the Celsius story. Coming up we're going to speak with an investor who's been sounding the alarm over Celsius for months. Mike Alfred joins us from Eagle Brook Investors. And we'll get insight on theorems block chain revamp the merged with Nick
Carter founding partner at Castle Island Ventures. And to access all the latest data and news on crypto. Check out. See our WIP. Go on the terminal. This is Bloomberg. This is limber crypto I'm Kailey Leinz with Matt Miller. Well ICC chief Gary Gensler is warning investors of crypto lending platforms promising high returns. Speaking at a conference earlier today he said quote How does somebody offer four and three quarter percent in the market today. I caution the public. Think about it sometimes if it seems too good to be true. It just may as well be too good to be true. Joining us now is Mike Alfred Eagle Brook Advisors founding board member. Mike is a
crypto wealth manager and investor who has been sounding the alarm over Celcius for months. And of course it is Celsius really that inspired these remarks. Mike from Gary Gensler as we say you've been warning about this for some time now yet it doesn't seem that everyone kind of caught on to the warning signs. What were they. What did you see to see this coming. Thank you Kailey Leinz. First off I just want to say I take no joy whatsoever. This is a very unfortunate circumstance set of circumstances that will affect a lot of people. You know at the very top here you got to start with the fundamentals. I mean these businesses are essentially shadow banking unregulated shadow banking businesses. They take advantage of a regular 20
loophole since they don't accept USD deposits. They don't have to be regulated as banks. I mean they're offering yields historically that are well above what the market yield should be in a normalized environment. And so you just look at that and you say OK if interest rates are negative in Europe and interest rates are close to zero in the US and somebody is offering 17 percent or 20 percent that's usually a red flag right off the top. Then when you look below the surface what I noticed was that Celsius actually been fired from two major Tier 1 custodians of crypto already because they were uncomfortable with the amount of speculation and leverage that was going on within the platform. Then when you dig a few layers deeper from that you you discovered things like the former CFO was was arrested while traveling in Israel related to a previous crypto scam involving a gentleman named Moshi Hogue who was also arrested. And it was a close associate of the founder and CEO of Celsius. And so again there's layers and layers and layers here. But after I saw four five six seven eight of these things I
started to look more closely and I thought it might collapse. So why didn't anyone else you know why is up to this week. We just saw the CEO Celsius two days ago I think tweeting out that there would be no withdrawals or saying like we haven't had any any blocks to withdrawals yet. And then the next day they put the gates down. How come we didn't have anybody else wising up to this earlier. Look I met Alex eight years ago he was the CEO of Novato
Wireless. He used to claim that he invented VoIP right. He invented a bunch of other technologies. You know he's a very evasive guy when you talk to him directly. He goes on and on and on doesn't let anyone else get a word in. And there's a lot of signs that he's kind of living in his own reality distortion vortex. And so most of us knew in the space that there was something going on here. But if you talk about it in Twitter spaces it's not necessarily mainstream. Right. The Wall Street
Journal wasn't wasn't covering this but we were covering it last summer and our Twitter spaces. And so why why didn't anyone know this was going to happen sooner. I would say people did. Right. And I'd say that it wasn't just me. Right. I was definitely one of the people talking about it earlier. But there were a lot more people than me that saw that there were issues there. OK so obviously we're talking about Celsius specifically here. Is this unique to Celsius or do you have similar concerns about other crypto lending platforms other companies in that space. I have. Last summer a block fire got trapped in a grayscale bitcoin trust trade. And the thing I need to point out here I think is that we're at the very tail end of a decade long bull
market. Everybody's lost their head. This is not just a crypto problem. People were buying Shopify and Netflix and Karvan 50 and 70 times sales. So the fact that they wanted to speculate on early stage companies is not surprising. Right. Tiger Global got caught in the same trades. Right. And these are supposed to be the most sophisticated people on Wall Street. And so it's not it's not really any one company's fault. It's that the entire you know foundation of this market has shifted because interest
rates are so low and there's too much liquidity. We printed too much money. So everybody's trying to buy blackface stock and Bitcoin stock and galaxy stock. Right. And some of these companies were just overvalued. Right. And so the investors had to be in those names. I saw several investors who invested in BLOCK Fine. Sells these last year who felt they had to be in but they didn't do enough due diligence if they did. They said you know what I can't miss this.
OK so now that Celsius is collapse like do you see how large of a rescue see a broader contagion. I think it's going to be pretty well contained. So Celsius was probably the worst of the group in terms of their risk management frameworks. I mean there's still to this day speculating on different protocols as we are talking right now. There are hundreds of millions of dollars shifting back and forth on chain even as the customer assets are frozen. So this is completely irresponsible behavior that you'd never see. You know and most sophisticated large firms the other firms like Bauxite already paid one hundred million dollar settlement. The S.E.C. they've mostly ceased these type of activities. The CEO
came out and said that they don't actually have any assets in these same protocols. So I think some of these other firms got religion sooner. And so even though they made mistakes I don't think they go bust. Whereas Celsius it's a it's an open question. We may need to wind Celcius down and sort of an orderly receivership type of scenario. Mike I want to ask you
about state either. There are concerns about Fly Doe for amassing a big stake. I know that Celsius was a big holder of stakes either as well. Now the difficulty bomb has been delayed. What do you think about the merge and how far it'll be pushed off. I'm not sure. Right. I made a joke the other day on Twitter that it will be 2050 and we'll still be talking about the merge. But a lot of issues have come out of this theory and staking ecosystem for ourselves. I mean they lost 75 million dollars and stay home state county alone. And that was just a loss of keys right. By the people managing the protocol. So I'm not going to make any predictions specifically about what happens there but I
do think they need to stop the compounding the errors and the mistakes. They've blown a hole in their balance sheet. It started last spring blew a 40 million dollar hole their balance sheet in the spring. They bailed themselves out with equity. But they can't do that anymore because they keep losing more and more and more money the more they try to do to save the assets. One other thing I need to bring up. They also have a duration and sort of a liquidity mismatch problem because they
have investors that want their money back now. But I believe they may have taken some of that money and put it into this illiquid mining business. And you cannot take a mining business public right now in spite of them filing in on this one a few weeks ago which I actually found to be a huge red flag because nobody in their right mind would try to do that in this environment. All right Mike it's been great to get you on hope. We can talk to you again soon. Mike Alford there of Eagle Brook
Advisors talking to you about Celsius the collapse and the fallout. Coming up Nick Carter a founding partner of Castle Island Ventures focused exclusively on public block chain research and investment will talk to us about his expectations. This is Bloomberg. I don't think these things are disappearing their values will fluctuate for sure. Sure if you bought it at sixty thousand dollars you've lost a lot of money. And I'm not saying these are great investments but I think these are investments that aren't
going to go away. And I don't think the whole crypto economy is going to collapse nor do I think block chain is going to disappear. I don't think people are going to basically abandon the whole concept of crypto currencies just because the market's down for the last couple of weeks. Carlyle Group co-chairman and co-founder David Rubenstein joining us to talk about the sell off in crypto a little bit earlier. I want to get to Nick Carter right now Castle Island Ventures founding partner one of the first research analysts on Wall Street. Before that covering crypto. Nick it's great that
you could join us. I have seen so many kids recently that had jobs on Wall Street leave for four block chain or defy opportunities that now look like they're going to evaporate. And so many people in their 20s and 30s that have had almost all of their wealth tied up in crypto be devastated by the drops that we've seen recently. What does this do for confidence in the entire crypto universe. Yeah I think we're seeing sentiment. Pretty much an all time low. I don't think I've ever seen people feeling this negative about the industry. All of that said there
are still plenty of crypto firms that are hiring. You know that we seeing layoffs for sure. But the sort of core ideology that powers this movement is intact. Right. You know you've to look at these things in contrast to the fiat currencies that they seek to replace and the traditional financial infrastructure they seek to replace and those fiat currencies. To me it looks like they're being debauched right now. So while of course we're having a leveraged flush in the industry I think the core ideas are still pretty intact here. So in terms of institutional interest which has been one of the big
drivers on the way up until November do you think those players are still going to take part in crypto. It really depends. We're seeing some institutions are getting burned. If you look at saw ISIS which we were just talking about on the prior segment Canada's second largest pension fund is an investor. So not all institutions are the
same. Some will exit the market and become disillusioned. Others will rebalance and double down here which I expect to provide maybe a floor on the valuations of some of the highest quality assets here. The general institutionalization of the industry is an ongoing trend which I certainly don't expect to reverse anytime soon. And I think the actual power of a decentralized financial infrastructures will continue to be persuasive here. OK so Nick you talked about Celsius and of course that followed just weeks after the collapse of the Terra stable coined the Terra Luna eco system as a whole. How much of what we've seen the pain we've seen in crypto is due to some of these specific events versus just a broader macroeconomic environment that has turned away from high risk assets like crypto currencies. And it's easy to ascribe these songs to singular events but I
think you're right it is. To me it's more of a broader macro picture here. We're looking at yields rising relentlessly. We're looking at bonds selling off alongside stocks which is not meant to happen. So clearly the financial sector as a whole is experienced enormous distress as liquidity is being withdrawn and things that aren't meant to happen in financial markets are happening. We're gonna have the Fed hiking into potentially recession here. These are situations that no living investor has ever lived through. Frankly pretty unprecedented stuff. So the fact that you know pretty frothy asset class is getting crushed here. It's not really that surprising. But yeah to me there is a leverage deleveraging occurring with Celsius and terror and things like that. But I believe it's really more sort of the broader macro context which matters here. OK. So do you see any
reason to be optimistic or are there certain bright spots or pockets of opportunity still neck. Absolutely we're still investing actively we're deploying. There's a huge amount of dry powder actually raised by venture funds on the sidelines here which I expect will be deployed into the market. I'm not seeing enthusiasm stem there at all. Fundamentally the story is intact. Bitcoin offers a sound money and if you look at its alternative the dollar of inflation is
eight point six percent. Are you looking at other blue chip currencies like the yen being crushed. You know we're looking at the potential and position of serious monetary repression in this country. So I think if you're considering sound monetary assets look at them in contrast to what's happening in the financial system. If you're looking at stable coins that you're going to see crypto dollarization continue to occur as we have potentially as a wave of sovereign defaults here you know crushing emerging market currencies all these things you know the broader macro context it's hurting us in terms of liquidity being withdrawn but it makes the fundamental case for these assets stronger than ever. Well one of the one of the big tailwinds was the idea that we could get greener by switching from proof of work to proof of stake that was going to happen with ether maybe still will but it seems to be delayed again. Right. We've had concerns about
light show too much of the stake being held by one custodian and now the difficulty bomb being delayed. It's very jargon. But when is that going to happen or is it going to happen. Well yeah I mean I expect it to happen. You're looking at you know late this year early next year. Certainly do expect that transition to occur. But I think you also nailed the problem
with proof of stake which is why it's not necessarily desirable to move away from proof work to prove a sec is the perfect steak allows for concentration of control and it gives the largest stakeholders control over the network. So you know while that will occur for a theorem it's not something I would prescribe for Bitcoin for instance. And I do think Pitchfork still has sort of key benefits here. All right. Well we'll still be waiting and waiting and waiting. We'll see when and if it actually happens. Nick Carter of Castle Island Ventures great to get your insight. Thank you so much. Matt I really enjoyed the conversation with Nick today as well as with Mike on Celsius. And we should mention we did reach out to Celsius see if they'd like to talk to us for an interview. We didn't hear back Celsius. If you're
out there if you're watching we'd love to have you on next week. We'll be back here Tuesday at 1 p.m.. If you're still there we'll still be here. Coming up next week Amy will head a ventures at FTSE DAX and Delta BLOCK. Chain Fund founder Covid Gupta joins us to talk more about crypto. This is Bloomberg.