'Bloomberg Technology' Full Show (02/14/2022)

'Bloomberg Technology' Full Show (02/14/2022)

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From the heart of where innovation money and power collide. In Silicon Valley and beyond. This is Bloomberg Technology with Emily Chang. I'm Emily Chang in San Francisco and this is Bloomberg Technology coming up in the next hour. Tensions still high on

the Ukrainian border. We will look at how disinformation is showing chaos and confusion about Russia's troop buildup on social media. Who is and isn't the aggressor on the digital frontlines. Plus the FCC kicks off its crypto crackdown. The crypto exchange block FI agrees to pay 100 million dollar fine over its lending tactics. CEO Zach Prince will be with us to talk about what's next. And sticking with crypto coinbase is back up and running after crashing amid record traffic on the back of its Super Bowl ad. With the crypto ad blitz means for the future of digital tokens.

We'll get to all of that in a moment. But first it's been a volatile day in the broader markets as the world watches. The evolving standoff on the Ukrainian border are at Ludlow here with the latest ad Take it away. Yeah. Look U.S. equities swinging between losses and gains and losses. The S&P 500 of course the main gauge of U.S. equities made three attempts at a rally at a comeback out of negative territory. We closed down four tenths of 1 percent. Technology shares though were able to snap the declines that we saw on Friday which was a heavy loss in that session but only just an NASDAQ one hundred up just a tenth of one percent. Really mega caps leading the way. Here you see the likes of

Apple Amazon Tesla and video. All big points move to the upside pushing up the NYSE plus index in semiconductors. Also just eking out a game. But as you said the markets had to struggle. Getting a read on the situation with the Ukraine and Russian border of course yields also higher as the market looks at the outlook for higher rates. And the Federal Reserve minutes due this Wednesday. Interesting to look at Bitcoin as well in the cryptocurrency space of course this weekend nearly everyone

paying attention to the Super Bowl. But crypto does trade 24/7. And it tells the story isn't it. We've kind of been trading sideways in a narrow range on Bitcoin. Forty two thousand. We didn't see kind of big swings like we've done in previous risk off sessions really more static range. And speaking of Super Bowl if you were busy this Sunday and you

weren't paying attention to the markets you might have missed this deal or rather the collapse of the deal. Let's take a look at Lockheed Martin and Eric Dine. The deal has been called off. Lockheed basically saying that they decided to pull the plug because the FTC sued to block the four point four billion dollar deal. Remember Lockheed wanted to do this deal to bring every jet propulsion technology in-house. Why. To develop hypersonic weapons for the U.S. military. We don't really talk

about the defense sector that much or that often in this show. But it was a sizable deal that's now being killed. And it does seem like the FTSE is on a bit of a roll in terms of their antitrust work because to me that's what this came down to. So if you were glued to your screen this weekend you wouldn't have had much time to think about that one. All right Chad thank you. While the popular crypto platform block has agreed to pay one hundred million dollars to the FCC and 32 states over allegations it illegally offered a product that pays customers high interest rates to lend out their digital assets. Current block five customers can continue to earn interest on their existing investments but no new customers in the US allowed.

Backfire says it plans to register a new crypto lending product that will satisfy the FCC rules. Joining me now is Zach Prince the CEO and co-founder of BLOCK Phi. Zach thank you so much for joining us. So why not register with the FCC a few years back. Yeah. Hey Emily thanks for having me on. So I want to give folks just a little bit of background before answering that question directly. BLOCK five is a four and a half year old company based in the US with a team of over eight hundred and fifty people. We provide financial services to crypto market participants including retail investors and institutional firms. On the

retail side of our platform we have more than a million clients in a suite of products that includes the interest account product which is kind of in question with this settlement. A credit card product with bitcoin rewards cryptocurrency trading crypto backed loans a crypto wallet and a personalized yield offering for high net worth individuals. On the institutional side of our platform we operate BLOCK Five Prime which provides bespoke lending and trade execution to more than 350 institutional firms. So the settlement today is related just to our interest account product which is one of the most popular products we have because it offers folks a high yield on crypto currencies and stable coins at a time where inflation is running high and yields is hard to come by. Consumers around the globe have benefited tremendously from this product which has paid out

over 700 million in interest to block five clients to date. And the fundamental question that prompted the settlement is not it's a security and our objective. Emily was to find a path for us to keep offering this to as many clients as we possibly can. And we think that's what we've achieved here. And I don't know that it necessarily would have been an option when we launched the interest account around three years ago in 2019. But we knew that the FCC was concerned about some of these lending products. We saw Coinbase cancel their lending product because of FCC scrutiny. So why not do this earlier. You know I disagree. You know we were working on you know regulatory questions that we've always been heavily focused on.

You know compliance have blocked by we've paved the trail with other products like our crypto backed loans in terms of finding regulatory regulatory constructs that work for them. This issue really came to a head for us about seven months ago. And like I said our focus was on protecting our clients ability to to earn interest and finding a regulatory construct under which we could do that. So you know I'd highlight two key things from the settlement. One it's a neither admit nor deny settlement and that we cooperated with regulators throughout. And to that the settlement very clearly lays out a path to registration of a crypto interest bearing security which we believe will be a win not only for block 5 but also for the broader cryptocurrency industry because of the clarity that it brings. Now as you see commissioner has there Pierce is known for being more crypto

friendly thought that this hundred million dollar fine was disproportionate she says rather than forcing transparency around retail crypto lending products. Today's settlement may stop them from being offered to retail customers in the United States. What's your reaction to that. Well look I can't comment on anyone at the commission specific statements or the commission's rationale behind the size of the settlement amount in terms of the fine. But I can't say that backfires in the fortunate financial position of being able to manage this settlement with zero impact client funds and to continue investing and growing our team and platform. We have a ton of open rolls that we're actively recruiting for. We have a lot of new product developments planned for later on this year. On top of the two new products that we already launched so far this year and on top of the Bitcoin rewards credit card products which we which we launched last summer as one to register a new lending product. What will the new lending product look like if the current product do you feel is successful. How will this be

different. It'll be different in terms of the type and frequency of reporting and information that's provided to consumers. You know so BLOCK Fi has tried to be a leader in transparency in disclosures which we've done through a variety of mechanisms since we launched the interest account. But by registering we'll be you know participating in a in a standard that you know folks are very familiar with. We'll be subjecting ourselves to

quarterly reporting of audited financials and other key metrics in terms of what's happening on the platform and what risks exist within the product. And so you know it's really a it's really a change in terms of those disclosures in terms of the structure and in terms of the regulatory clarity around what exactly is this product. And in fact I think that there will be some really interesting opportunities created for greater adoption of the product when it's you know officially defined and approved as a security signal to some of your competitors. I mean do you expect folks like Coinbase Walt will follow suit here given that clearly they wanted to have a lending product like this as well. Yeah I mean we're definitely blazing a a path that you know I would fully expect others to follow. You know ultimately the

cryptocurrency industry is still relatively early in its in its development in my view. I think we have a long way to go and a lot of upside from here. And I think that competition is great for consumers. Competition helps drive adoption. It helps you know it helps drive pricing efficiencies. And we we embrace and encourage competition. So I think that we're blazing a path that you know I wouldn't say anyone in particular but that that hopefully quite a few folks will will follow.

Curious what you're hearing from customers our customers concerned especially customers that have this lending product as it is. Well first in terms of the customer impact let's be clear about one thing. This settlement does not impact our existing clients ability to earn interest. So for folks that have a block by interest account they will continue earning interest as they already as they always have. Additionally if you're someone that is thinking about becoming a new client of BLOCK 5 you can still access 5 out of the 6 retail facing products on our platform. Trading credit card loans block by wallet in personalized yield are all still available to new clients. But you know our clients have been asking questions like how long is the registration process going to take. Is this going to

have an impact on the rates for the insurance. And some of those things we can talk about now. Others will come out in due course as we proceed with the steps in registration. So what's your message to new and prospective customers. You know when clearly we're seeing regulation take some time to catch up to innovation if that's what you want to call it or new technology. And that leads to a lot of uncertainty ahead whether it's this product or another.

Yeah I mean look the cryptocurrency the industry writ large is at a stage today where it's becoming part of the national political dialogue. There's an increasing amount of work being done by regulators in the industry to help create clarity. You know what I would say to consumers is that our view on this should be that we want the U.S. to be a leader in this exciting high growth technology sector. We want the largest companies built in this industry to be based here in the U.S. because it's great for our domestic economy and also helps promote our leadership and soft power across the globe including the dollar standing as the global reserve currency. So you should understand these issues. You should educate yourself on what's happening in this market. And I would hope that you know a lot of folks when we're going into midterm elections or you know just having conversations around the dinner table will help talk about these things in an educated format. The fundamental

objectives of the S.E.C. around things like protecting investors and promoting capital markets are things that blackface incredibly supportive of. In this settlement for us is another example of us helping push forward the industry by working with regulators to help facilitate clarity. Black Fire CEO and co-founder Zach Prince. Thank you for joining us. Coming up how the conflict between Russia and Ukraine is playing out on social media with the Kremlin appearing to take on a new tactic. We'll tell you how next. This is.

If we impose some very heavy sanctions as I believe we're planning to do on the Russians with regards to international banking. But most importantly with regards to Nord Stream too and their ability to distribute fuel there's going to be some consequences to that to the United States and to other countries as well. Former U.S. Defense Secretary Leon Panetta there. And as the Russia Ukraine standoff intensifies state run media and Kremlin officials are using another channel to justify a possible military offensive. Social media. Joining me now to talk more about this is Nina Jenks of its global fellow at the Wilson Center an expert on disinformation and democratization. Nina thank you so much for joining us. So I'd love it if you could take us to the digital front lines. What are you seeing there.

How are pro Russian actors using social media versus Ukrainian ones. Well I think this is an exploration and expansion of the tool kit that we saw used in 2014 where during the first invasion the first Russian invasion of Ukraine where Russia illegally annexed Crimea Peninsula we saw Russian actors using fake accounts trolls and bots in order to spread pro Kremlin messaging. We've moved on a little bit since then. Rather than those fake accounts we're seeing trickle down messages from Kremlin officials being cycled through state run media and then laundered into the Western information eco system on the fringes of our political system to kind of give credence to Kremlin narratives. And what we're seeing are three main narratives. One allegations that Ukraine is run by neo-Nazis. Now it's important to note that while there are far right forces in Ukraine they do not hold any political power. They didn't even make it into

parliament. Two that NATO is actually the aggressor in this conflict that it has nothing to do with the fact that Russia unilaterally stationed over one hundred and twenty five thousand troops on Ukraine's borders and three that the US energy and military lobbies are the ones that are pushing this conflict again not the Kremlin which is unilaterally making these defensive measures against Ukraine. So I think all of that is really important to note. And we're seeing this again laundered into the Western information ecosystem in order to have impact. And I have seen this impact myself as I've done my research on

the far left and far right of the political spectrum as well as policymakers. Right. So that was my next question. How much of an impact are these tax tactics having. Is it is it working essentially. Well it's hard to tell right. Because we don't have a concurrent polling that's going on talking about. Have you seen Russian propaganda. And if you saw Russian propaganda what was your reaction. I think a lot of people don't really know that what they're ingesting is a Russian narrative and don't know very much about Ukraine and what's been going on there and the Democratic path they've been trending for the past eight years. So we need some real education about that. And I think we've seen the United States try to do that through their

declassification through toward deterrence strategy which we've seen over the past couple of weeks. But you know it remains to be seen if if the ultimate goal is to convince the Russian government not to undertake this invasion. We'll see in a matter of days or weeks I think whether this strategy has been successful. But ultimately you know I think a lot of Americans

and Westerners in general think of Ukraine as someplace far away that they don't have to worry about. But as we heard the UN Panetta just saying this conflict could have far reaching consequences not only for Russians but for the price of oil which we just saw shoot up today thanks to worries about the conflict escalating. We're seeing some sarcasm and subtlety in some of the media discourse coming out of Russia. And it's leading to quite obvious jumps in market moves. Investors are feeling pretty jumpy out there. I mean talk to us about the real world consequences of some of these you know potentially very subtle digs. Well you know I think we're seeing Russia push back on the White House and the United Kingdom's kind of prognoses that an attack could be coming imminently pushing back on the idea that you know their diplomats and staff aren't safe on the ground that citizens aren't safe on the ground. But just as a reminder

whenever the Russian government alleges that they're not about to do something and in the recent past that's not been true. You know they said they weren't involved in the annexation of Crimea. They were involved in the annexation of Crimea. They they unilaterally took the peninsula. They weren't involved in the shoot down of MH 17. They actually were. So I think we're seeing a lot of this back and forth. And because investors are smart and they know that you know the United States does depend on some Russian oil but Europe depends on Russian gas and oil in order to to fuel its heating during the winter that things could get pretty ugly pretty quickly when these sanctions are imposed on Russia if they do decide to invade. And so I think that's why

we're seeing that volatility in the markets. And there's you know the very real consequence is the fact that Ukraine is a large country. If you if you aren't aware I would suggest viewers look up a map of Ukraine superimposed on the map of Europe. It's huge. It is right on the doorstep of Europe and could have real consequences for migration and economics in the EU and in its own brand. So you know this war is not something that would necessarily be kept to a small region. It would have far reaching economic and humanitarian consequences for the continent if not the whole world. You co-authored a report to verify photos and video footage appearing on social media out of presumably Russia. What platforms are you seeing. Most of this

stuff happened on. Is it is it ticktock. Is it telegram. Is it Twitter still. And are platforms living up to their responsibility. To moderate it. Yeah. So this report's actually really interesting through open source footage we've been able to verify Russian troop movements coming from as far as the far east of Russia to Ukraine's border. So this isn't

disinformation. This is actually just normal Russian Belarussian and Crimean citizens taking videos of tanks that they see rolling down their streets. And because of that we're able to verify the types of equipment and units that are rolling in to positions near the border. And that's really important as Russia continues to deny that this is anything but normal troop

exercises. So that's the open source component there. But we've also been tracking narratives on on platforms like Tick Tock Telegram and Instagram where a lot of the discourse related to Russian disinformation has moved since 2014. Before we used to see stuff on message boards on Facebook on Twitter. Now we're seeing a lot more on these more youth oriented platforms more viral platforms platforms that are driven by algorithms and by individual users consumption which makes it a lot more difficult to crack down on and and a lot more difficult to make sure. OK. Is this an authentic user or someone who is in authentic and

working on behalf of the government. It'll be interesting to see how that develops. All right. You know Jake always global fellow at the Wilson Center. Thank you so much. Lots to continue to monitor. Coming up we're going to talk about the crypto wall. How will the onslaught of crypto Super Bowl ads impact mainstream adoption aside from crashing the Coinbase Web site. We'll discuss. This is Bluebird. Coinbase has entered the big leagues. The crypto platform debuted a commercial during the Super Bowl ditching the

celebrity cameos and opting instead for a bouncing QR code for all 30 seconds that led to an offer of 15 dollars and free bitcoin for new users and a three million dollar giveaway for a current one. For more I want to bring in Bloomberg's Hannah Miller who covers crypto for us. So seven million dollars for a 30 second slot. Did it work. I think it did. I mean the evidence is in the fact that the website crashed right after this QR code came up and people were scanning it nonstop. So I think it's really exciting to see. It was definitely a unique way of approaching a Super Bowl ad. And you know they didn't go with celebrity star power Coinbase and FTSE X did these crypto giveaways. RTX did go for the

celebrity cameo with with Larry David and a couple of others is a giveaway. It doesn't give away work or is it giving a gimmicky. I think it is a big gimmicky. But this is a way to show people you know hey crypto is fun. You know jump right on in. But I think it is interesting in that it shows that a lot of success in crypto boils down to chance. So it's sort of a unique approach here. And I think it's interesting that they kind of both went. But this giveaway tactic I think a lot of folks could probably

relate to Larry David skepticism. And I'm wondering if this will really drive mainstream adoption. Do you think we're going to when we look back on the crypto bowl in history will we see a bump in crypto ownership. I mean it very well could be. I think you know Larry David skepticism probably struck a chord with people who are maybe a bit daunted by crypto. And he's such a familiar face that I think it could at least intrigue people about crypto. I mean we've already seen you know app downloads increase for Coinbase as app. And there is evidence that this seems to have caught on

and that there is positive buzz about Ron. And LeBron also made it into a crypto ad to a slightly better reception than Matt Damon do we think. I mean obviously we're going to see more intersection of sports and crypto in the future. What are you expecting to see. Yeah definitely more partnerships between different sports leagues and crypto companies. We've already seen this happen with RTX and Coinbase striking partnerships with the NBA. RTX also has a partnership with MLB umpires at baseball games where an FTSE logo on their uniforms.

And I think this is just the start of more mainstream traction for crypto and sports is an easy way for people to get involved and hear about it. All right. We'll see how many newbies buy the dip if it is indeed a dip. Bloomberg's Hannah Miller who covers crypto for us. Thank you Hannah. Coming up CAC CEO Jesse Powell joins us to share his reaction to the Super Bowl crypto ad takeover and why he didn't jump on the bandwagon. That's later in the show. This is Bloomberg. Welcome back to Bloomberg Technology Emily Chang in San Francisco. Let's get back to the markets in one of Monday's best performers with our at Ludlow Ed really on the move. Why. It's one of your

favorite days of the year. Love is in the air sometimes heartbreak. I invest up for the occasion. Well that's right Emily. It is of course. Thirteen F filing day. The one we've all been waiting for. It's the day the deadline really. The FCC requires all hedge funds to state what their U.S. equity investments were. As of the close of the fourth quarter revision was they were in love. We've reviewed it in this past quarter even though the stock was under pressure. Let's bring up some of the names. Some of these were existing investors right. The boy at the IPO. There were private round investors previous to that.

You've got Soros adding to their stake D1 Capital Partners at to state T where price which is the largest single shareholder adding to its stake and in Tiger Global disclosing a new stake although that's based on the fact we're not sure if they participated in private rounds. Just pick up the stock performance year to date. This is stock is down more than 30 percent and it is down 20 percent since that IPO. There's been a lot of concern about the ramp up of production. Doesn't matter in the fourth quarter even though the stock was on a downward trajectory you see there at the end of 2021 a lot of these big big names coming in and adding to that position which should be positive. And it was so for the stock on Monday.

Again real interest from these hedge funds and fund managers in the tech sector broadly. But another big one that jumped out at me Berkshire and Activision really interesting activity. Berkshire of course Warren Buffett's firm adding fourteen point seven million shares a stake that would have been valued at nine hundred and seventy five million dollars on December 30 first. Here's the thing Emily. December 30 first we had not yet had the deal of Microsoft acquiring Activision for sixty nine billion U.S. dollars. So this was pre metaverse. This was pre massive US discussion and pretty massive. Just play maybe some interesting

foresight from Buffett. You know is Microsoft a real well the Oracle of Omaha maybe attracts again. All right. Thank you Ed. Well metaverse might be the buzz word of the year so far but close behind it is defined or decentralized finance an umbrella term for peer to peer financial services on block chains. There's a ton of activity and see money pouring into it. While scams and thefts still plague the space. Joining us now with some ideas and capital founding partner at Lauren Kolodny. Lauren great to have you with us. There's so much money flowing into defy and Web three right now. Where is the smart money going. Thanks for having me Emily Chang. Yeah. Look no question. Lots

of buzz around this space right now. But I think this year in D fire we're seeing a real convergence between FinTech C Phi and D Fi. And what I mean by this. It's really coming from all angles. So on the fintech side we've been an investor in fintech for the last decade. And companies like Chime and Gusto and Give Pay. And we're seeing a lot of traditional fintech companies look to

adopt crypto and D5 strategies. They're doing that by engaging with infrastructure that's enabling new companies like Conduit or helping to enable this. Companies like Compound Treasury are enabling this too. So we're looking at infrastructure plays that are really helping to bring fintech into crypto. And on the other side of things in D5 we think D5 starting to really need

to learn lessons that fintech has really learned over the last decade around consumer product ization. When you think about how hard it is for your average consumer user to engage with defy right now it's no small feat. So and we haven't done it yourself. But it's one of these things where if you want to participate in buy you essentially have to go onto an exchange like Coinbase buy a theory and probably then move that a theory into a wallet like metal mask exchange it on a decentralized exchange for a more local currency. So using like a unique swap and then you can start just start to engage entity five. So the

onboarding experience is really cumbersome. And so we're starting to see these five projects that are really adopting better consumer and user interfaces to enable that on the institutional side. There's a company we invested in actually called Vanguard founded by Mona Elissa which is a female founder which is unfortunately refreshing in this space. But that's just one example. What are the not so smart money. What's overhyped overblown.

You know I think that we're just there's just such a proliferation of projects right. And there are people coming out of the woodwork starting things that are risky for consumers. Flash homes being one example that has seen a lot of activity but not really risky. I think also there's a lot of activity going on around cross chief technologies which really enable interoperability across various level one protocols. And we need that interoperability. But but the sophistication is not yet there. You know we recently saw a big attack on Wormhole which is one of the more popular chains between the other ones.

A theory I'm in Solana. And so I just think that the market is needs to have to be very careful about some of these new technologies. Now we hear so much about Delphi and the potential to remove these middlemen democratize finance. And yet Delphi is still really hard to access for the average person. Have you found the

company that can do D5 for the masses like Netflix and AOL did for the Internet. To be quite candid we're in early days so I think it started more on the institutional side like I mentioned robot guard guard and I think we're starting to see it more and more in consumer. I mean I still think we're where we're looking to the future. And this is why this is the category that we're so excited to get invested in in this calendar year both as I said on net new companies offering new consumer products and on the infrastructure players that are really enabling existing contacts that have the attention of mainstream consumers to start to offer highly higher yield products to their customers. Yeah. Ultimately I do think that D5 has the potential to really democratize access but it's a technology like anything else. And at the end of the day it it's designed by the people that are involved and the good and bad will come from those operators.

All right. So the next hundred million users is that like a decade out. A year out. When does that happen. I think we'll see it in this in this calendar year. I think that a lot of what I'm describing the infrastructure is being developed so quickly. We're seeing all kinds of new companies pop up that are really offering these new user interfaces.

Gamification education is really starting to go off. So you look at what Coinbase has done with Coinbase learn as one example where we're really pleased to be an earlier investor or new companies like Rabbit Hole which connects into your net amass for existing wallet and helps you guide consumers through the experience of how trading you find. These are these are projects that are really enabling new users to come on so I can get along. I think it's here. Lauren Kolodny founding partner at a crew capital. Thanks for giving us your view of the future. Meantime some news crossing in the chip industry. Bloomberg has

learned Intel close to a deal to acquire Tower Semiconductor for about five million dollars as part of its push into the outsource chip manufacturing business. This according to a person familiar with the negotiations Intel said to plan to announce the purchase of this Israeli company as early as Tuesday morning. Coming up the crypto ball crackdown was one of the few crypto exchanges that didn't pay seven million dollars for a 30 second Super Bowl spot. Why not. CAC CEO Jesse Powell. What is next. This is Bloomberg. As we saw cryptocurrency firms went big on one of the most watched media events of the year booking coveted commercial time for a captive audience and what many have dubbed the Crypto Bowl. Coinbase spent millions on an ad with just a single QR code. Later their Web site crashed. Bloomberg Sonali Basak joins me now for our crypto report. Sonali I got to say I was one of

the people who clicked on the QR code to that play based Web site. So it worked with me. And here we are talking about it. But is that success or not. Yeah well it's interesting to think about what happened there. You have the chief product officer over at Coinbase saying that they had the most traffic that they ever had. And you're seeing it in the numbers when it comes to

Coinbase. They are rising. They have risen very far up in the app store for Apple up to number two in fact. Emily you can't see another crypto company another crypto exchange in the top five let alone the top 10 or the top 20 if you don't cash the count the cash app for the Apple app store. So in that way it is a success. But with all of that said you are not seeing a surge in Bitcoin prices that go along with all of these new potential users. You have Coinbase giving away 15 dollars to new users millions to existing customers is gratitude. But Bitcoin prices itself as a result of all of these promotions plus these other exchanges has not risen even a thousand dollars over the last couple of days even with a little bit of a decline in the last couple of days. So what does this all mean at the end. What does it mean for these companies. These customer acquisition costs moving forward might get difficult. And if you look at companies like Coinbase like so far even that hosted the Super Bowl now

trading stocks now trading crypto along with each Toro as well so far. And Coinbase are actually down more than 20 percent on the year when you look at their stocks in U.S. trading. So it will be interesting to see whether this translates into a business model let alone just popularity online. All right. Sonali hang with us. I want to dig in to this crypto ad takeover and the merits of it or not with crackin CEO Jesse Powell crack and skipped the crypto ad bonanza on Sunday. Jesse. Great to have you back with us. So why didn't you do a Super Bowl ad. I mean everyone else said.

Know sometimes it's nice to be second and see what happens to all the guys who want to run out there first. You know I think the customer acquisition costs that some of these guys are paying you know buying these stadiums buying these sports teams. I'm a bit skeptical that this is going to play out in the long term as it as a positive investment. You know I think this is really a marathon. I don't think you know I think at any given time there

are only so many people interested in coming into the crypto space. And I think you know spending thousands of dollars for four per user acquisition is definitely not going to be sustainable. So you know we don't have to be first at everything. You know we just kind of we want to be best the best of what we do. And we want to have you know a long term sustainable business. It's not just about making a flash in the pan for our investors for employees. You know we're here running a business not a popularity contest. But is this a good strategy for the overall crypto space. Do you think this will bring in a lot of new owners or does it just over saturate overhype things. It's a great question and I think it'll be great to see maybe

we'll find out in the in the public reports from Coinbase. You know what. What this proved out to do for them was it more than just getting a bunch of visitors to your Web site. Did it actually translate into revenue at the end of the day. I think that's yet to be seen. And we'll be watching closely and hopefully we'll get some some indication as to whether these campaigns were successful. Jesse I'm really curious about the winning strategy here because you're seeing firms like FTSE that expand further into the stock market in addition to crypto. You see firms like them and others look to provide more and

Coinbase really provide more access to institutional investors where the ticket size is so much bigger than the retail investor in a purchase of any bitcoin. So for you what is the way to go in terms of building a bigger business. We're really focused on the consumer segment right now. You know historically the company is almost 11 years old now. But we were historically focused on the institutional segment on the professional trader segment. And only in the last year have we started to focus on consumer. And yes the check sizes are bigger for institutions. However they're also much more price sensitive. They're sensitive to the fees. So and they're fewer of them. So I don't think that you necessarily get to a bigger business just by serving that demographic. You know if you just look at the valuation of a pay pal versus CMA Group or a NASDAQ you know

PayPal has is multiple times bigger than those. And it's because of the consumer focus and the global focus. And so that's the direction we're headed. I think there's a bigger business there. There's more room for a brand identity there and brand loyalty. And I think the focus on institutional while it might seem attractive in the short term I think there's a cap to that business. And I think that those those clients are not necessarily loyal. You know they might be loyal to to where they get the lowest fees and the lowest fees you know are your revenue. So from a business perspective I think it makes sense at least for us to focus more on the consumer business while we

still continue to serve the institutional business our focus. And that's where our roots are. But our focus today is on consumer. Curious what your thoughts are on this block. One hundred million dollar penalty and how it's impacting your regulatory approach. I know you recently tweeted that you're hiring 30 lawyers who are probably pretty busy. Absolutely. And Marcus said you know we would hire up to 60. You know it's a great time to be a lawyer. The crypto industry broadly has a lot of unanswered questions and I think that'll continue to be the case for a long time as as things shape up globally in terms of our business you know we have a banking license in Wyoming. So you know we might have a

bit of a different approach to to the lending business in the future. But you know I think it kind of confirms that the suspicions that we've had all along about this model is that you know we weren't totally sure that this was going to survive regulatory scrutiny. And it sounds like it hasn't. In the United States which is one of the reasons why we pursued the banking license in the first place which we feel like would allow us to do some of these things that maybe Blankfein is not able to do now in the United States with consumers. Yeah I'm curious. There's what you do

with regulators and there is what you do on your own and then an independent audit. The idea of proof of reserves how does this start to change the landscape for consumers and consumer protection. And what is it really doing to prove what's there for the underlying assets. Yes so we recently completed a proof of reserves audit. It's the second in our company's history. We pioneered this process about seven years ago when we did the first one in the industry. And

since then there've been other companies that have done it. But we're we're by far the largest venue to have done this in recent history. And what it does is allows the users to confirm for themselves through cryptography that we actually control the coins that we say we do. You know that we hope for them that that they can prove crypto graphically that in a quote unquote like bank run type scenario where if everyone came for their withdrawals at the same time that we would be able to serve those withdrawals. So I think we've seen over over history there's been tens of billions of dollars of funds stolen or lost

or misappropriated somehow in the crypto space. And you know there's something that's just unprecedented in traditional finance. You don't have this level of transparency. The regulators aren't even mandating this stuff of banks. You know you never know if you go to the bank if they're going to be on the process of withdrawal or not. I've had experiences myself. I go to the bank and ask for some amount of cash and they say well you're going to have to come

back in a few days because we don't have that cash. So you know this is something that that is above and beyond what any traditional financial institution can offer. And it's something that the crypto industry is doing for itself. And I I think it sets a great example for the world and for regulators and for law enforcement who are worried about these situations of insolvency that this industry can control for these things and it can self regulate. And this sets a new bar. I hope that regulators will start to look at and start to apply the scrutiny that they have of the crypto industry back on the traditional finance industry which is not offering these kinds of tools or transparency. I noticed Jesse that you are promoting crypto for Valentine's Day and I'm curious why you think that's a way to show your loved one that you care. Given the volatility of the market I mean can we really count on Bitcoin right now especially where

it's at in the moment. Look I think diamonds are just losing value every day. So you know you're you would be much better off giving your partner some bitcoin today and having them hold on to that for for the next 20 years then you would be giving them a diamond which are being created in labs these days. That cannot happen with Bitcoin. You know there's a finite supply. You know I'm very bullish on the currency long term and the prospects of the entire industry. So you know I think it's a fantastic gift. It brings someone into the space. And you know Bitcoin is more is more than price speculation. It's solving real world problems. You know like we're seeing in Canada where you have fundraisers being shut down by the government or by a centralized fundraising platforms. And Bitcoin is is circumventing that and getting around that getting money

directly to the people. So you know I think it's a vote for freedom and it's a representation of true love. If you give someone bitcoin Jesse. Well you know I know ISE beyond what it means. I am curious about the price here because anybody who love Bitcoin last year at sixty thousand or so was still thinking it could possibly get through one hundred K. I know you thought so at one point too. How fast do we get there again. For sure. I've still got my Lambo reservation on hold. I'm hoping to get on with air conditioning. So you know I think I'm still bullish on the price. You know I think yeah a lot of us thought that we were gonna get over one hundred thousand dollars last year. But you know you can't predict these things. Ultimately you know what. We see our continuing use cases and continuing reasons for

people to use Bitcoin. I mean inflation is at an all time high since the 80s and that's the stated inflation. We all know when we go to the supermarket that inflation is way beyond seven and a half percent. So you know that combined with the controls the clamp down on these protests and legitimate fundraising efforts I think shows that the use case for bitcoin is getting stronger and stronger. And there's just more and more reason to believe in it long term. All right. Bitcoin diamonds. Tough call. Luckily people out of this out there back and see what a bitcoin on. That's what I'd say. CAC CEO Jesse Powell at our very own Sonali Basak. Thank you both. Coming up from Metta to Microsoft we'll take you through today's top tech stories next. This is Bloomberg.

Well first it was finance and now it's technology the return to the office under way from Microsoft as Covid cases decline across the country. The company telling its U.S. employees to start returning at the end of the month in a fresh attempt to get the tech giants operations back to normal. Microsoft's chief marketing officer writing in a blog post that workers should begin a 30 day transition period starting at the beginning of March. That said the company still plans to allow remote work for up to half the week without a manager's approval. And sticking with tech meetup facing a fresh lawsuit in Texas

the state's attorney general filing a suit against the parent company of Facebook over use of its now discontinued facial recognition technology. The state alleging that use of that tech violated its privacy protections for personal biometric data. The lawsuit seeking civil penalties in the hundreds of billions of dollars according to a person familiar with the matter Meadow says. These claims are without merit and that we will defend they will defend themselves quote vigorously. And staying in the Lone Star State the FAA is extending space X is Texas Environmental Review for its starship rocket until late March. It is the second delay of the review that will assess the impact of launch operations in Boca Chica Texas. It's now expected to finish March 28. But Space X must also obtain a license for a test flight and others it conducts from Texas. That's it for this edition of Bloomberg Technology tomorrow. We've got Brian Chesky right here on Bloomberg Television on the

back of Air B and B results. This is Bloomberg.

2022-02-17 21:03

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