Bloomberg Crypto Full Show (06/28/2022)
We are live from Bloomberg World Headquarters in midtown Manhattan on Matt Miller and I'm CAC Lyons. Welcome to Bloomberg Crypto. Look at the people transactions and technology shaping the world of decentralized finance. Coming up a two trillion dollar freefall rattles crypto to the core. But Mary Catherine later a former BlackRock Rising star has no regrets about leaving Wall Street for the world of defy. She joins us today. And with leverage and liquidity issues in focus will assess how much of a threat the latest meltdown poses to the market's survival. With Troy VIX of SS Investments. Plus Sam Beckman
freed to the rescue. We've got details on the billionaire now being called the new John Pierpont Morgan a potential lender of last resort for the crypto industry. All of that is ahead. But first let's get a snapshot of the market. And the best way to do that on your Bloomberg terminal is C our Y Pico. But I pulled a few of the coins here. We can see that it is lower movement though not by much for the two biggest ones bitcoin ether. They're each off a little more than 1 percent. Bitcoin remains in that 20 to twenty one thousand dollar range.
Right now trading at twenty thousand six hundred eighty dollars you're getting a little bit of outperformance today from some alt coins and also by NANCE Coin BMV higher by about nine tenths of one percent. Where you're getting some underperformance though is X R P. Remember we're still waiting that judgment on the lawsuit between SCC and repo. The FCC filing that in 2020 alleging that a report issued SRP as an unregistered security. And now Brad Girling House the CEO of Ripoll says that if the S.E.C. wins they'll be pulling out of the US. So maybe that's weighing on sentiment for X P today. It's off about three and a half percent at this point. And that's only the third rail of crypto if you touch that debate than the crazies come out on
Twitter. I'm taking a look at really plain vanilla crypto and that's bitcoin. It's incredible underperformance really even compared to a lot of other fairly frothy assets. The Nasdaq 100 has outperformed Bitcoin. The IPOs back in DAX has outperformed that. Even the sold out at round hole meme stock index has outperformed bitcoin in purple here. The concerning thing to me
is that the underperformer of the whole group is the NYSE FactSet Global BLOCK Chain Technologies Index. So a real problem in this crypto winter a real deep freeze. Now investors economists and executives continue to express caution. The bitcoin purists of course believe in the story of Bitcoin as the currency of the future. Some people believe that is even going to be the next global reserve currency. But the institutional people don't necessarily believe that to defy the
Paul Sweeney people for never writing a exponentially is very very high. And therefore the financial officers intervene thinking there are huge. And this was meant to happen. These performances in turn will never be missed. The market is always going to demand more and more transparency. What is different about this downturn is the generalized downturn rather than the last last couple of crypto winters which were sort of specific to two crypto people are a lot more optimistic than even I expected. He really sees sort of a dichotomy between traders of crypto and built technology builders and crypto. I'm highly confident that there's strong appetite from within the crypto space and also in the broader
institutional space. We're turning a problem into an opportunity. So there's still some optimists out there. But Crypto may be facing its most important test yet. Our recent Big Take explores how crypto is all for one ethos was its biggest draw and now it's its biggest threat. Like Sakhalin of consensus views cryptos downturn as a traditional financial deleveraging saying quote What is happening now is about money moving out of deployed functional systems due to over leveraged and poor risk taking. Joining us now is Troy ISB chief market strategist at F
s Investments. Troy great of you to join us. I was looking through some of your commentary before the show when you basically said there used to be three reasons to own as much Bitcoin as possible one being that there was so much money supply it was young and having cycle there was the opportunity for institutional adoption. Now you say two of those are basically out the window. Where does that leave us. Yes. So look if you go back to the
last having point you had the natural dynamics of a tremendous bull market. And that's one of the factors that unfortunately the people that drink the Kool-Aid all day long forgot is that you know Bitcoin has fixed supply. Right. So when that supply is cut in half and demand stays constant just like oil or houses or other assets you have these meteoric gains but then also works the downside. And that is prices drop. You don't have less supply like you get with copper or oil or houses or other assets out there. And so naturally you're going you're in the back half of the having. So you tend to have bear market. So that's one to two year point Caylee look. Money supply growth was out. Regis levels 42 percent in a very short period of time was the growth rate. Forty two percent of all dollars ever printed were printed over 18 to 20 month period. And now my supplies actually
contracted. In April we're waiting for the May data. Now prior to the Fed actually drain a balance sheet. So those were very powerful tailwinds that are now headwinds in instituting the balance sheet is a key issue here. I wonder what you think is going to happen if and or when the Fed actually does that. Of course they didn't reduce it a huge amount after the great financial crisis. And it will be interesting to see how they're able to do that now. But surely that's going to have a very bad
effect on cryptocurrency currencies and a lot of speculative assets. Well yes. So when you think more broadly any speculative asset including equities and even more speculative assets like crypto you when the balance sheets drained that reduces money supply growth. Right. If money supply growth actually goes negative then you're working in reverse. You're not debasing the currency. You're actually enhancing the currency strength. And so if you think about what can cause the next major leg down for risk assets equities or crypto it's if they actually follow through and it's still a key if because they've yet to meaningfully shrink their balance sheet even in June yet. But when they do it's going to more than likely lead to a lay down.
And so that's why you should never own more crypto than guitar losing. You have to be able to stomach these massive downturns. But if you look over the next two to four years it's still one of the few asset classes that from this point can double triple quadruple or quintuple. It's just now is going to be a sloppy choppy mess at best and more likely losses going forward on a mark to market basis. Terry what's been the effect of inflation of energy inflation on bitcoin especially in the on the mining side of things. It's got to be so expensive especially if you weren't smart enough to put your machines in the Arctic Circle.
If you've got them down in Texas you're going to pay so much to cool them down. That's that's the new mining hub of the Arctic Circle. So yeah I mean look the cost of obviously mining goes up was energy prices go up. And you know that's one of the key causes of late cycle bear markets is when miners finally have to
capitulate and sell some of the crypto that they've accumulated or bitcoin in order to finance their operations. So far more important has been the trajectory of price and where we are in the cycle than the rising energy costs. But yes man on the margin that hasn't been a favorable development particularly in the new mining hubs like Texas or other places which are experiencing materially higher energy costs. OK. Troy so we've talked a lot about how the broader macro economic environment of risk sentiment has affected crypto. Let's talk about regulation as well because we heard from Gary Gensler the chairman of the
S.E.C. yesterday in an interview on CNBC. And this is a quote he said Many of these financial assets crypto financial assets have the key attributes of a security. Some like Bitcoin. And that's the only one I'm going to say they're a commodity. And I'm wondering Troy if you agree with those classifications and how they should be regulated in light of that. Well look I mean if you think of Bitcoin in particular it's it's obviously been around the longest. It has defined code. It has
limited supply as very good stock to flow. If you think of it as an alternative asset to hedge government profligacy one could think of that as a commodity. I will leave it to the S.E.C. to interpret others whether they should be securities or not. Sorry about that Dodge. But clearly Bitcoin can be thought of as real assets or real property as it has been tax that in the past or as a commodity. We think what's most important is the fixed supply and the fact that new supplies have every four years and
that if you look over a 40 year period or even a five year period the trend is always towards government profligacy more money supply growth higher budget deficits and this is one arrow in your quiver that you can hedge that with. But just to understand it in the shorter term you're going to deal with tremendous mark to market volatility as has always been the case with crypto assets. Joy great having on the program. Thank you so much for joining us Troy. I ask you there of FSS investments coming up. She is the creator of the world's biggest decentralized crypto exchange protocol. We're gonna speak with Mary Catherine later chief operating officer of Unit Swap Labs next. And Sam Bateman Freed's shopping spree. Well Robert the next item on his list of acquisitions we'll take into that and to access all the latest data and news on crypto check see are Y P go on the Bloomberg terminal. This is Bloomberg. This is Bloomberg Crypto. I'm Kailey Leinz with Matt Miller and billionaire Sam Backman. Freed has been making major moves to
help the industry survive this crypto winter. Bloomberg has learned now that he may be exploring an opportunity to acquire the struggling app based brokerage Robinhood. Sonali Basak joins us with the details Shelly. Yeah of course. Now we know that Sam Beckman freed had taken that sizable stake in Robin Hood already about 8 percent of a stake. But now we are learning Bloomberg is
learning that internally at RTX they're discussing whether emanate would make sense. Let's take a look at what farming himself has said that he's excited about Robin Hoods prospects and potential ways that they could partner together. But with that said there are no active emanate conversations going. Of course we know already that RTX has been going deeper into
stocks buying and bed. So the question then becomes do they build or buy. Of course Robin Hood stock has risen quite meaningfully on the news that was reported just on Monday. But the shares have come down just a little bit on some doubts about such a combination. Guys. OK. So this could be a potential way that SPF is playing offense. He's also trying to play defense and also play the hero maybe for some firms in the cryptos. White Knight is certainly the white knight. All right. Anthony Scaramouche says and told Bloomberg Sam Beckman freed is now the new John Pure point. Morgan he's bailing out cryptocurrency markets the way the original J.P. Morgan did after the crisis of 19 0 7. Remember Shankman Freed's Alameda had extended credit to
Voyager and that same crypto book workers issue a notice of default to three hours capital. The troubled crypto hedge fund alone worth roughly six hundred seventy five million dollars based on Bitcoin's price on Monday. But let's look around the industry for a second because not everyone has SB after the rescue. Take SE because there are reports now COIN Desk has
reported that Goldman Sachs is looking to raise money billions of dollars to buy filthiest assets as a lending company restructures. Then of course there's Coin Flex that announced a controversial plan on Monday to issue a new token as large investor as one large investor misses a margin call. Coin Flacks hopes it restarts withdrawals and resumes operations with the new funds. But there's also a chance they don't raise the nearly 50 million dollars they need even with a 20 percent yield promised on those tokens. June 30 if guys is the deadline to watch. Just a couple days away from now. Thanks very much for that. Now joining us is Mary Katherine later chief operating officer of Eunice Swap Labs the creator of the world's biggest decentralized exchange protocol and a key player in the world of defy. You're not the actual coder yourself of course but it's an
incredibly interesting move that you've made from trad fi which is like the cool way to say basically Wall Street now to defy. Have you. Is there any regret there. Because we've seen crypto assets just come crashing down in price. So I had a great career and stratify as you put it but absolutely not. I mean Swab Labs is also very special and different in that it's technology. It's some of the core technology for the promise of decentralized financial services. So what we do is create a protocol and other products on top of the protocol to allow anyone to exchange any crypto asset for another. That's a fundamental revolutionary
concept that anyone can become a market maker. Anyone can become a liquidity provider in this two sided marketplace for assets. So to me having spent my career in Wall Street and tried fire this was in a fascinating and exciting innovation. And I felt like and I still feel like it has huge potential in traditional asset classes and for all kinds of new use cases that don't even touch traditional finance today. So it's really quite different from some of what we see of the market dynamics that are happening now. What we do is infrastructure. What's the biggest headwind that you face or problem. Because we keep hearing for example about theft from these bridges. Just last week I think there was another hundred million dollar theft. And it's not the
kind of thing that we hear about on Wall Street. When Goldman transfers money to JP Morgan it doesn't get stolen. In the meantime I know of. Right. So a lot of that happens at these points of intersection between different chains or between different applications. Unit swap is an application on a theory on it is then separately on polygon or different chains. So we don't actually have any bridges. So we've been very very careful very deliberate to not actually build in those points of vulnerability where there still are a lot of open questions about the technology and how to keep it safe. To your point the
biggest challenge we have is how do we make sure that we're building in a way that is safe so that the next tens hundreds of millions of people feel like they can trust these new systems that do have some core benefits the benefits of transparency the benefits build a custody your own assets if you choose to. The benefit of being able to realize value that today isn't only recognized in today's markets. And so in order to do that it has to be safe and trusted and were fortunate that so far our conservatism in not doing things like building bridges means that you know swap hasn't ever been hacked. And we are one of the most trusted applications out there. OK so we talked about how you left Brad Fi to come to. 5. But how do you bring trad
buy into this. How do you attract institutional. Traditional old school players to Yunus swap. I think one of the first things is to explain that this is a totally novel innovation. The notion that you can use smart contracts to allow exchange between assets and anyone to become a liquidity provider and market maker automated market making so to speak is a novel innovation.
And so one is we have to get that message out there and help try understand where is that useful whereas that create a return a profit motive for traditional actors but also in what asset classes. Is there a lot of utility adding more liquidity to the long tail. Environmental commodities might be one example. Less liquid fixed income might be another example. And so there I've actually found in the past few weeks since we've had some of the frenzy around prices in the markets die down we've had a lot of inbound interest that we didn't even have before from traffic. Five players saying well how can you help us understand what
some of the more like high value use cases might be for the technology. Interesting. And obviously you're growing very quickly at a swap. You are in charge of hiring. In particular I know you've added a lot to your headcount and a lot of those people are women. And I know that diversity in the broader D5 space it isn't always its strongest point. So talk to us about how you're thinking about that challenge. Right. So we are a technology company and in the depths of financial innovation. So
neither of those industries are known for having particularly great gender diversity. And it's important to me it's important to our entire leadership team that if we're building a more inclusive financial system it needs to the company needs to reflect that there are tons of talented female engineers but you'd really have to get it right at the start. And so we are extremely focused on finding incredibly capable female technical talent and then making sure that we have a 50 percent gender ratio that we maintain our customer contract engineering team which is one of the most elite and rare skill sets in all of crypto is is majority female actually. And so it's something I think with you if you've been focused on it it compounds we're fortunate. So many people under the age at our company under the age of 30. And there is there are more female engineers who've
been beneficiaries of more focus and getting more women into engineering and science and technology. So anyway it's a priority for our company and we're we're going to keep it that way. This week wasn't yet another crypto conference. And I can't tell you how many people came up to me in the industry and just said how much they appreciated respected our company's commitment to it. So and you still see a lot of interest I mean especially as asset prices have fallen and now we've started to see heads roll at front from the winkle vie to block fi right. To Coinbase to Coinbase. And that's the worst one right. Because a lot of people left their jobs on Wall Street and then were
denied and they were on the way in the door. Do you still see as much interest as you did before that. We do. We see tons of interest. I think look the key question is can you trust that the company you're joining is managing their cash effectively. That's true in any industry. And we we were very deliberate about how we grew the company. And so we're still hiring. We're hiring thoughtfully but we are still growing. I think this is a moment where it sort of does separate. Why are you interested in getting into this field. Right. People are expecting to just sort of get rich quick and ride a wave. Or are you interested in the fundamental technology that has promise for a much more open accessible system and for really expanding markets to whole new areas. That's what got me into this space. That's what got most people you know swab labs into this space. And so I think that's
that's resonated. We see tons of interest. Okay. So we talked about how you're growing your headcount. What's the next growth opportunity for unit swap. I know you just acquired Jeanie which is a play on NFTE which obviously also has a market that has cooled down a bit. So what's next for you guys. You're right. We did acquire junior NFTE aggregators so they aggregate the
different team marketplaces like open sea. And we did that because we want to be a one stop shop for digital assets. And FTSE is like saying a PDA if it's a file format. And so if you think about building your portfolio of digital assets you might want to buy different kinds of digital assets at the same place. That's part of the whole benefit of crypto is you can have the same infrastructure across asset classes. You can use the same swap finance rails across asset classes. So what we're focused on growing is two things. One is more users. We need to make it way simpler for people to take advantage of the app of the
benefits of decentralization. And that means simplifying the user experience and growing into those growth sectors like entities. And the second is as pools of capital like that sort of growth of track fi adoption pools of capital that will benefit from automated market making. All right. Great having you in the studio. Thanks so much for coming to visit us Mary Catherine. Thanks. Later there of Eunice Swap Labs. Be sure to check out our Bloomberg crypto podcast which dives deeper into the daily market buzz to explore how this asset class is changing the way we live. We've heard Eric
Adams for example talk about property deeds and birth certificates. Mary Catherine is talking about smart contracts. And that I think for a lot of people could be the future. And get that podcast on the Bloomberg professional app. I Heart Radio or wherever you get your podcast. This is Bloomberg.
This is Bloomberg Crypto. I'm Kailey Leinz with Matt Miller. Now to some crypto stories that caught our eye this week. And one of them being Coinbase already has fallen very far this year. It's fallen even further after Goldman Sachs analysts downgraded the struggling digital currency exchange to a celebrating citing the continued downdraft in crypto prices and the broader drop in activity levels across the industry. The stock has lost more than three quarters of its value this year while also grayscale
is recruiting some heavy hitters to help convert its Bitcoin trust into an ETF. It's brought on Jane Street and Virtue who would become authorized participants if approved. Remember SPF came from J Street. The SCA C has yet of course to approve an ETF that holds actual bitcoin and said it out. Global head of business development is leaving to run the firm's new crypto
platform. The joint venture is being created with virtue of Charles Schwab Ancelotti with the intention of increasing investors access to cryptocurrency. Jamil NASDAQ is hoping to bring his knowledge in the traditional finance space into the crypto space to once again Matt. It's about that bridge between trad fi and define. We talk about Citadel as a market maker style of securities roll in Robinhood and making those traits free and democratizing finance. It's kind of bringing that same idea from stock trading to crypto. Yeah and it'll be interesting to see if they can attract more talent. You notice where they just moved to right. They weren't. They were up in Chicago and now they're down in Miami. And there's been this battle between
cities to see who can be the capital of crypto innovation. And Miami seems to be winning that battle right now. That's where Mike McGlone of Bloomberg Intelligence went down to to cover this for us. So taking his talents to see if we all could do that that would be wonderful. All right. That's gonna wrap it up for us here on Bloomberg Crypto this week. But coming up next week we're going to be speaking with Noel Atchison head of market research at Genesis treating what is her view on how to drive the trajectory of prices from here. Now that we're stuck around this 20000 level or so for Bitcoin. So don't miss that conversation next Tuesday at 1 p.m. right here on Bloomberg.