Bloomberg Crypto Full Show (07/19/2022)

Bloomberg Crypto Full Show (07/19/2022)

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Live from Bloomberg's world headquarters in New York I'm Kailey Leinz. Welcome to Bloomberg Crypto. My co-host Matt Miller will join us in moments from the Bloomberg Quicktake Summit which is underway right now in midtown Manhattan. Industry leaders and experts have been gathering in person and virtually all day for the annual summit. And coming up next Matt Miller sit down with the CEO of the payments app Strike. Jack Nicklaus. In the meantime though before we get to that take a

look at some highlights from today's conversation. Luna was the first kind of part of this crises and it started a daisy chain of events. Some of this is is herd behavior. Some of this is not a crypto specific phenomenon. Some of this is like what investing looks like at sort of peak mania. I think the worst happened and now we're rebuilding. Sometimes volatile days

can be good for profit. But in the long run view like we like it when markets are healthy and efficient and going up and stable probably deal with retail there should be more caution. My heart doctor lost a million dollars in sales of all his bitcoin. I was really upset. Now I'm thinking that story that his heart and let him worry about my heart. How healthy the ecosystem is in the long run is going to be a very strong predictor of how much we can grow. People aren't going to give up on crypto. That line about Mike Novogratz is cardiologists definitely one of the best of the

day. All right. Let's get a quick snap of the markets before we head back to the Bloomberg crypto summit. It once again is an update across really the entire crypto complex. You a bitcoin up 8 percent trading above twenty three thousand dollars at the highest level since mid-June. Is this a sustainable break of that range. We have been in for the past month. You up either on the rise as well up 6 percent. Fifteen sixty three is where we trade at the moment. And the move is even bigger for some of those crypto related equities that have seen big gains over the last two days as we see a stabilization in the prices of the underlying cryptocurrency as themselves. Just take a look at Marathon Digital. Up 20 percent today. It was up 21 percent yesterday. So we are talking gaining 40 percent or so over the last two days. And for

Coinbase the big cryptocurrency exchange it too is up about nine percentage points. The question again is is this a sustainable rally. We have been waiting for a break out of the range for some time now. Of course we were waiting for a break out of the thirty thousand dollar range. Me eventually got that to the downside. Then the move was twenty thousand. We had put out an MRI poll survey just a couple of weeks ago asking investors whether they thought it was more likely we moved to 30 thousand or ten thousand first. The majority said that 10000 level. And you the breakout we are seeing today is actually to the upside.

Again Bitcoin is trading at twenty three thousand one hundred and ninety five dollars at the moment. And of course this is the backdrop to the conference happening today in midtown Manhattan the Bloomberg crypto summit. We have heard from some incredible voices over the course of the day. Thus far our very own Sonali Basak kicked off the summit with a conversation with Mike Novogratz of Galaxy Digital. We heard just about an hour and a half or so ago from Sam Banks and freed of FTSE. He's been called the white knight of Crypto at the moment. And now we are about to hear a conversation with our very own Matt Miller my co-host who's going to be joined by the CEO of Strike the Payments app Jack Mallory. They are sitting

down right now. So let's head over to the Bloomberg crypto summit and listen in. Thank you very much for joining us. I'm super pumped about this. As I was telling Jack backstage I've lived in various countries all my life in transferring money across borders has been the bane of my existence. From the time when I was a kid I needed my dad to help me pay my phone bill. It costs almost as much to transfer the money to pay my phone bill as it did to work out my debt to just this last January when I was moving back from Berlin I bought a house in Scarsdale and I had to transfer the downpayment which happened over like three different transfer wise interaction. So I'm really glad that someone's disrupted this. In this segment innovating here Jack Mahler's as I'm sure you all know has created Strike which is a platform or an app that uses the lightning network. This is actually Grateful Dead at the time. DAX. So thanks for having me. Yeah. So I want to first

know we were just talking about. You've grown up your digitally native right. I mean the white paper was released when you were like 14 or 15. So how did you get into the payments. How did you work out that we could use Bitcoin essentially to make frictionless payments across borders. Is a long story. I'll keep it. I'm looking at this clock radio. I'll keep it 60 seconds. But I've been in bitcoin close to a decade. She's crazy. I look like I'm twelve. Actually it's not that funny. It sucks that

I'm 28 so I've been in bitcoin since my late teens. I got into it. So my grandfather was the chairman in Chicago where trade my dad founded. It ran on the bigger discount futures brokerages. So I was grown up in my living room. All these big Chicago guys were building positions 2012 2013 2014. I knew the CMU was gonna build a product on this thing long before anyone else did but

just because I was eating dinner with the guys. Right. And so my first foray was bitcoin as this asset. It was like this commodity very similar to gold. A lot of those guys early on saw the asymmetry in the asset and it's scarcity was really important to them. Fast forward my work on the Lightning Network was to help those guys out. There were two main problems with Bitcoin. Call it LA 2017. So I hope I'm looking at the audience. I hope you guys are following. So this is like five years ago. The two big headed The New York Times like bitcoin socks. And here's why. One was the variable amount of time it takes for a bitcoin payment to be deemed final is like it was kind of unclear when is it going to get into the bot chain. No one

really knows. That was a variable. And then the variable cost is that it was a fee market and the market was free. And so it could the fees could hike on you. And so as those two variables time and cost and so lightning for those that don't know was a protocol that was designed to fix that for Bitcoin. And ideally if you could fix the variable amount of time and the variable amount of cost for Bitcoin transaction to be final then a very simple or like way to phrase that is bitcoin transactions are relatively instant and basically free which would be a huge deal. And so the story I like to tell is I was hacking on it. I was like the fourth node on the network. There's a buddy of mine in London and we wanted to recreate the pizza transaction. Like

really nerdy right. Like just sitting in my dad's basement and I sent him a lightning payment to London with my address and he ordered me a pizza payment got there instantly and for free. And it was in that moment that where I was like hold on a second. I just sent value to London. In less than a second. Didn't cost me anything. There was no concept of interchange. There was no concept of T plus X settlement. What did I send debts and a credit liability. Did I

send a promise of future settlement. It also happened to be cross-border but also a commerce payment. But the protocol we use didn't know that. And it was cash final. It would blew my mind and I was like this. The first innovation growing up would buy a bunch of traders that the price didn't matter. If bitcoin was ten dollars I would've just had to send more of it. If

bitcoin was ten million dollars I would just had to spend less. But the innovation was in payments and I started to look at bitcoin in conjunction with lightning as a global value transfer protocol. Visa is a protocol business. Swift plus correspondent thinking is a value transfer protocol. Western Union is a network. It's a value transfer protocol. And I started looking at this thing like this thing is magic. It doesn't care if you're crossing borders. It doesn't care if you're buying pizza. It's going to get value. Real cash final bearer instrument. This thing like is not credit. It is a physical digital instrument

that actually travels and moves in real time. And it's going to get there in less than a second for free no matter where you point the thing. And that's when the last sorry I went way over 60 seconds. But then two months later I called my friend back and I said You're gonna think I'm crazy because I know we're like these libertarian anarchists like screw the state or whatever but we're going to redo it but I'm going to make the payment out of my chase account and you're gonna receive it in your Barclays account. And the innovation is we're gonna be live converting dollars and British pounds into bitcoin on lightning and using lightning to get the value to London. But about by the way in terms. So this is what strike does also. That's when I founded the companies. I made an instant remittance payment for pizza to London with dollars and they received it as pounds. And it didn't matter what Bitcoin's price was. And I was like the like visa can't do that Western. You can't do that. And it's not

because like I'm like a particular genius. Like this thing is a big deal. How how how does the forex work. I'm just curious. In a bigger picture situation where you have you know more customers you're a grown up business and someone's transferring you know dollars from L.A. to you know euros in Rome. How do you know you're gonna get the same forex that you would get you know over the London Exchange. So you mean like forex is really inefficiently priced like the rates like come out once a morning like I'm reading the paper or something like think of a transaction. We all know them

right. I want the same for X that I read in the paper. And you'll get it. You'll get it. Here's here's how to think about it from a very high level. If you think about the down payment for my Chase account received instantly into a buddy's Barclays account there's three legs of that transaction. One is a BTC USD buy. There's money debited from my chase account and converted into bitcoin. That's dollars turned to bitcoin. I'm buying bitcoin not knowingly as a consumer but I'm trying to make a payment. And so we're converting BTC USD by order. OK. That's one like the second leg is a lightning network payment. There's no exchange that shows BTC going from Chicago to London. And then the third leg is a GBP BTC sell because I'm going from our

BTC. Yeah I'm going from bitcoin to British pounds. And so that's just like it's just like Coinbase does. Coinbase buys and sells bitcoin all day. So do we. It's the same thing. And when you net out those transactions if markets are efficient I'll tell you what if there's a problem with that rate compared to the normal force rate than some like prop firm is going to just arb that until it's not. I mean look what are we talking about. It's like well what if the banana to my left the dollar in the bin. It in my right. Ten dollars. I don't know. Make nine dollars all day till it's not all right. Oh I'm not. Gee that's one thing you mentioned Coinbase and a lot of the other crypto related businesses that seemingly should be OK no matter what the price of the asset is are having problems. Maybe it's business specific issue with coinbase they over hired and they have to then turn people away. But in general strikes should not be affected by the price. Doesn't matter to

you if bitcoin is a million dollars or ten dollars. It's exactly right. Those the other reason I started the company is it. It's a it's a payments business. Bitcoin. We just use it as a value transfer protocol to do stuff other people in the industry can't do. But we're not. We're not correlated to the price of the asset. Right. Like for example working with really large fast

food retailers. Those are our customers working with NCR to enable the receiving of dollars over this thing. So in theory a cash app user it could go dollars from cash app to bitcoin on lightning straight into a large retailer like Wendy's for example. Like we empower that Wendy's doesn't care about the price of the thing. They're getting instantly credited. Dollars without any notion of interchange that is fixed and announced by the Fed. Or by a bank consortium. So they don't like they don't have a tab open of like what's the price of Bitcoin. They don't do that right. They don't care. It's it's better payments. And just to editorialize I think Wendy's is clearly the best fast food at least of the three major chains. Do we all agree it's the highest quality here. This is a Wendy's. What about competitors. I mean anyone could do this. Visa

Western Union Barclays they could all jump on and use the lightning network. That doesn't bother you. No. The thesis is that the network is going to be better than what we have today. Today we have these kind of like old bifurcating. Like if I walk into Starbucks with Western Union here me be like what am I supposed do with that. And if I try and remit money over Visa to El Salvador don't really work. You have these highly optimized digital payment networks for non digital assets. It's very expensive. There's a lot of fixed costs.

It's very slow. And I think that this one open global Cingular network will all these other services will consolidate on it. So it's implied that cash comes on. What's the use of a network if I'm the only guy on there. That's a pretty lonely network Matt. According to the definition of a network I even think it'd be called the network. So it's implied that yeah one day before I die my transfer my wire transfer from Chase to Barclays should be over a more efficient payment rail. And so I think what we all want is open free market competition where anyone can. It's an open standard to the transfer value. And it's very simple. Like people think like well you know visa's easier. They don't have to touch Bitcoin. This is not easier at slinging around a

bunch of credit liabilities all over the place. So it's not easy. It's you go online read the instructions you implement it and you can build the experience you want. That's where you get inherent free market free market competition which inherently suppress suppresses pricing. And you get to really get to the bottom of things like financial inclusion problems like if JP Morgan Chase can't bank someone because the only way they make revenue on you is if you're credit worthy. But now if the value

transfer standards open people could build services for whoever they want. If there's a real market opportunity the markets can find that right. So you're just a better world. And the more people that come on the better. And for a business like mine we benefit from the network effects of that. Like Jeff Beck people like what happens when Amazon turns it down like I don't know. Probably worth 10 times more overnight. Right. Like you mentioned El Salvador by the way. I don't know if it's the perfect petri dish but it certainly is an experiment. How do you think that's working out. Because its strike is active there and here and very widely used as our other payment apps. Yeah he's working well I don't know. I'm like since when

was like changing the world and like the trajectory of your country your homework assignment that was due in like three days. Come on. I think it's working well. So well. Just happens to coincide with the drop of bitcoin by like 60 percent. So yeah I mean that's why it gets a lot of decision. I've been through a lot of these bear markets is the first one where a bitcoin through a violent bear market where everyone's freaking out is outperforming Netflix so that everything's dropped. And what do you want. El Salvador at old right now instead. Right. And like the rising rates crushes emerging markets. So I don't know. Pick your poison like the system's broken. I don't want to tell you but you can see how people are able to use strike in places like El Salvador places like Argentina. So where you're active. Yeah. So I mean like where the acquire for Domino's for example and El Salvador they're receiving payments instant cash finality from any interoperable service. You want to use the government while you want to use the wall your cousin made in your basement. It's a dollar to

dollar using this open network. These two counterpart parties we don't sign MSA is with them. I don't have to check their credit worthiness on our balance sheet. We don't you know SPF to see if islands like unaccredited or operate like it's just cash final bear instrument. And so yeah for consumers the Domino's for U.S. citizens to remaining money home it's really cool too. I mean there's no you can remit a dollar insulin for free. So you're talking about a lot of low income folks where. Sure transfer ISE fees aren't that bad if you're limiting one hundred grand fewer meant 10 bucks to 50 percent. Right. By the way how does strike then make money. I mean if I'm able to send a dollar for free. How much do

you get of it. Yeah. So we don't actually think of ourself as like a competitive crypto app. We think we're providing a premium like banking like experience for consumers where you're enter we give you a visa card. We make money on that. Right. We we offer the same suite of products where interoperable with the card network. You can make ACA transfers but then we also give you this lightning network thing and we give you what yield savings accounts like. Oh like how do how do banks monetize consumers. It's the same thing. And then on the acquiring side it's the same thing is I can just my counter positioning like for example a card networks rack rate is 100 basis points. Like near hundred percent cash flow

positive business for me so I could charge a big retailer 5 basis points that's all cash flow positive right. And so I'm just doing the same financial services just better. That's the innovation. It's not rocket science. It's just better pricing better experience. So it's pretty straightforward. I want to ask a little bit about the crypto universe in general. As you said you've been in since your late teens. You've seen a lot of bear markets. It's so weird to hear someone who's 28 say that because I normally talk to 70 year olds who say that and they're talking about the market. What do you think about this crypto winter. I mean for me it's insane. I bought my first bitcoin at six hundred dollars. Also

doesn't know that it's still worth twenty thousand dollars. But obviously for someone who got in it 40 50 60 it's painful. I don't not like the fundamentals of bitcoin and any viable investment thesis hasn't changed. And to be clear I don't know. You know if this is a hot take in this room but I'm bitcoin I don't like. You don't want me to get going on everything else. So. Oh but I do. Of what. So I think bitcoin fundamentals haven't changed. The correlation to risk assets is interesting. We don't have enough time to expand on that. But I do think like post 2008 what you saw is assets with any relative fixed quantity or just you're implying non direct relationship to interest rates start to rally on the back half of recessions and in macro environments like this. So I think it's going to be really interesting to see if Bitcoin

rallies when others don't act like six to 12 months. But right now it's risk off of everything like everyone scared even tea by market like having treated terribly. But the biggest criticism of bitcoin other than the fact that nonbelievers say it has no intrinsic value is that it uses so much energy to mine. And I actually know your take on this already. So maybe you don't get into it. But one of the things we talk about on our crypto show a lot is proof of work versus proof of stake. We have people come on like Joe Lubin who really defend the idea of proof of stake and saying that it's going to be he's got a lot more secure. No he does.

But what's your take. I mean Aether is the big challenge here is that. Yes you see. No it's not. So first of all using energy is not a bad thing that like engineering and the use of energy is implied and like the growth of humanity. You know what else he does love energy in airplane. So I tell you what you'll like energy. Next time you in the wife go to Europe. You take a kayak. I'll fly united. Next time you want to save and grow your family's well you use the dollar. I'll use bitcoin. Next time you wash your clothes you hand scrape your kids stain out of the white T-shirt. I'll use a washing machine once since one was using energy. A bad thing. I mean come on. Like it's absolutely asinine and

ridiculous. And as far as it's just ridiculous seriously it's like no one was like all this airplane use too much energy. We're trying to use a lot of travel. We don't know what to come. She takes a sailboat. So yeah I get like deathly sick or something. Is that not a good experience or hot water but a small carbon footprint. No. ISE care of the kids care about their carbon foot and even the carbon footprint. I mean it like incentive. It's the best use of energy. You know like what an airplane can't do. Or your washing machine like make use of excess energy of a waterfall.

So it helps stabilize the grid. Like God flying airplanes aren't stabilizing the grid. So it's just such an asinine ridiculous uninformed uneducated opinion. Those are the kind of questions I ask. Sorry. And no proof of stake like first of all if you want an asset to have a commodity premium which you know this room knows what that is creating money can't be free. Guys what are we talking about. Like the fact that if a lot of people want to trade Bitcoin it becomes more difficult. Is why the thing works. Are you. Have you lost your mind. Printing money cannot be free. And so like what do you mean. It's just a stake in the network. So someone like Rob BlackRock just buys stakes in the network. It's absolutely ridiculous. And then you

also have to account for things like the laws of physics which proof of work does. I mean I think what Michael Saylor Michael Saylor calls Bitcoin property and everything else not. I'm not going to comment on what the FCC should do or anything but I think the real direct messaging there is your relationship with Bitcoin is not a liability. OK. Your relationship with

Bitcoin is not a proxy to some foundation. Some team some corporate structure some development decision. In fact the founder of Bitcoin he she or they might be dead. And it's working really well Matt. That's what Saylor means when it's a property. There's no liability relationship like stable coins. There's a liability there doesn't need stable coins or bad. Matt I own a security. It's called strike stock. Securities aren't bad building about liability relationships like Tesla stocks. Not bad but there's a liability there with Elan and the company and their roadmap and their cash balance. Right. And so

like proof of stake your relationship with that assets a liability a stable one your relationship with that's a liability. In theory what you want is a monetary asset where there are no liability relationships. That's the whole point of the thing. That's what proof of work solved that it was a it was like an amazing innovation proof of stake. If proof of work is like we finally got an airplane to fly. So a quote of a friend of mine proof of stake is like we know how to make it cheaper faster and less carbon efficient just by not flying. It's like whoa. But that's not like a competitor. That's just a totally

different product. So sorry. Aggarwal animated. That's my. That's good. But we're on these internationally broadcast television side. Let's watch the language. I want to finally ask about. You're not going to tell the FCC what to do but obviously payments is a business that is highly influenced and affected by regulation especially after the Durbin amendment. And then the Fed put a cap on the amount of transaction fees. What can be done about that. Because you don't have the lobbying power of a Wal-Mart or a visa you know. Yeah

but you might. Here's what I mean by that. So for those that don't know and that's alluding to post 2008 the Dodd-Frank reform where the government was like this ridiculous. Like the counterparty risk that a lot of these central banking actors pose to the economy is too big. Whether they're right or wrong we can have whiskey over that. But that was what they felt. Then the Durbin amendment took debit card interchange away from banks. They're like this is ridiculous. You're charging 3 percent to move a balance from Chase to Bank of America. There's no credit in that. There's no like cost in that. It's not 3 percent. And like why are you saying that Durbin took it away from them. What ends up happening then is someone like Bank of

America goes well I can't monetize mortgage lending anymore post 2008. That blew up in it. Right now it can't monetize my checking accounts. So when did we start seeing overdrafts not free checking and a push to consumer credit which is a U.S. phenomenon because of this environment. Is there no there's no credit card market in Europe. It was then it was on Bank of America said listen the federal government took all my revenue miles away. The only way I can really make money is credit cards. And then you see businesses like chime. These are like Durbin amendment arbitrage is which it's just a checking account a debit card that routes under the exemption of ten billion dollars with assets. Right. And so what I think in my messaging

to the Durbin office I had the pleasure of speaking with them is kind of like put the guns down like federal overreach. What we really want is an open true fair marketplace. We want an open value transfer protocol where Square and Bank of America in China can all compete on getting money to Wendy's fairly. And that's it. And so when you say Wal-Mart and Bank of America is not on your side maybe they are. That's the power of an open network. And I think if you want true price suppression and you

want true open market competition you if you were to rebuild visa you would do it just like the lightning out it all. The banks would be independent nodes that are on a distributed payment rail and everyone's open to compete on how to swing the value between each other. And the value has to be property. There can't be a liability in there. Like what if someone sees the stable coins in the bank. What if the someone on the foundation of the founding team of the token goes through a divorce or something. It's like independent of any liability. And that's how that's cash final value escrow. And let the free market compete for experiences on the acquiring and the issuing side of the remitting side the global payment side. That's my

take. And I told Durbin oh no federal overreach is going to solve this. I think a free open market like lightning may be the most American thing we got at solving this problem. Jack Mahler's great talking you. Thanks so much for joining us. Zeo Strike. All right that was Strike CEO Jack Mallon with Bloomberg's Matt Miller at the crypto summit in midtown Manhattan. A very lively conversation. We apologize to all of our viewers for some of that colorful language was used but

really insightful conversation about using Bitcoin in payments and then also the energy consumption that it takes to mine bitcoin a conversation that has been had today at the crypto summit. Bloomberg's Bloomberg Quicktake Greifeld moderating a great panel on that. And of course you can see the continued coverage of the summit online glow on your Bloomberg terminal. I'm about to hustle down and get in the car to go down there myself. At 2:00 3:00 p.m. Eastern I'll be speaking with the RTS co-founder and executive chairman of Annie Mocha Brown Brands and founder and CEO of gaming company Out Blakes. Thank you for joining us on Bloomberg Crypto. We'll be back here next Tuesday at 1:00 p.m. Eastern. This is Bloomberg.

2022-07-24 05:29

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