Bloomberg Crypto Full Show (08/16/2022)
Live from Bloomberg's world headquarters in midtown Manhattan I'm Matt Miller. And I'm Katie Lyons. Welcome to Bloomberg Quicktake Crypto. A look at the people transactions and technology shaping the world of decentralized finance. Coming up an exclusive interview with the outspoken CEO of one of the world's biggest crypto exchanges. We'll ask crackin Jesse Powell about strategy sanctions regulation and more. And Wall Street's making major moved in crypto. But retail investors appear to be
anchored to the sidelines. We'll surveyed the investing landscape with Pat. Look at the other ways this pro markets plus crypto custody firm bid go drew an all cash offer which exceeds the value of that now terminated deal with Mike Novogratz is Galaxy Digital. We'll have all the details. All right. So all of that is ahead. But first let's get a snapshot of the market. The best way to do that on your Bloomberg terminal. See our NYPD go. That is your function. But I have a snapshot of just a few here on the board. We can see it as a down day for the major coins bitcoin and ether each down a little more than 1 percent. Bitcoin is trading north south of that twenty four thousand dollar level while
ether is trading south of nineteen hundred. Remember it earlier approached two thousand earlier this week. There's optimism building about the merge next month. However that is a feeding story today. One more positive story out there though is the dog coins doge coin in particular up nine point three percent on the day speaks to some of that speculative behavior back in the market in certain areas. And finally just noting Coinbase it of course trades pretty much in tandem with the price of bitcoin. So it is lower by about 1 percent today. And of course it's been a rough couple of weeks for Coinbase and also for rivals like exchange cracking. In July The New York Times reported that cracking is
being investigated by the Treasury Department over whether it allowed users in Iran to trade on the platform. The Times says the Office of Foreign Assets Control has been looking into crack and since 2019 and is expected to impose a fine but crack and isn't alone. Back in 2020 OFAC fines bid go more than ninety eight thousand dollars for one hundred eighty three apparent sanctions violations or alleged sanctions violations. Last year it fined bit pay more than five hundred thousand for twenty one hundred alleged violations. Joining us now for an exclusive interview is crack and CEO Jesse
Powell. And Jesse I don't think this has been confirmed outside of The New York Times reporting. Can you tell us whether or not you are under investigation by the Treasury Department. As far as I know The New York Times has not confirmed it either. They keep asking us for confirmation. So they're reporting rumors at this point and we don't generally comment on investigations or discussions that we're having with regulators. I can say that we regularly report things to regulators that we discover ourselves. And you know this is I guess the speculation that something happened back in 2019 three years ago. We've been
having discussions ever since. We have ongoing discussions with regulators all over the world all the time. Sometimes we report things to proactively. And you know this wouldn't be a surprise to me. And I'd love to see these numbers for the banks. By the way. Well but on the specific issue of Iran sanctions have you been contacted by Treasury or any other federal agencies about the possibility of sanctions violations. I can't speak to that specifically but we are in regular discussions with Treasury. Fair enough. OK let's talk about sanctions of another kind. In regard to the sanctions on tornado
cash how has that impacted cracking in your business. Hasn't really as far as we can tell. You know I think that what they've done might be unconstitutional. Sounds like Quinn Centre may be gearing up for a challenge on those grounds. You know I think that people have a right to financial privacy and there are a lot of legitimate people using the service for legitimate financial privacy reasons. And I think that we'll see if this survives a challenge. We've heard a lot of exchanges have had to
freeze access to tornado and it's happened before with other mixers. Do you have tips set in place certain procedures when this kind of thing happens. Right. So we would prohibit withdrawals to any addresses associated with tornado and we would likely freeze any funds
coming in from our tornado address. You know Jesse this is all goes to kind of the censorship of money which when I first started getting into Bitcoin back in 2010 the idea was that we would be allowed to go around governments that were that were censoring their fiat currencies. How do you deal with this as a proponent of free speech as a proponent of free movement of money as a bitcoin proponent and still work within the regulatory framework of the US government. It's a tough challenge now is why we have these conversations going on all the time are really trying to educate regulators and law enforcement and the lawmakers about the real risks here and about the real need for financial privacy and who cryptocurrency really serves. And beyond that this speculative use case here in the United States is really helping people all over the world who have less access to financial services. You know there are billions of people in the world that don't have access to a bank account. So crypto is really for those people first and foremost. And you know the getting around government
controls around the monetary system you know is a sort of secondary benefit that you know you see you see come into play in cases like Canada where they've shut down the bank accounts of protesters. You know that's the kind of scary thing we hope you don't see here in the United States. But that's another kind of insurance policy that cryptocurrency and bitcoin specifically provides. You know I think what we'll see a constitutional challenge against tornado cash. And I hope that people get their right to publish code. And that code turns out to be speech and money turns out to be speech. And everyone has a right to spend their money however they want. So do you think the sanctions on tornado cash are more emblematic of just an attack on open source development as a whole. I don't think so. You know that the code repositories were taken
down. You know it is I think a step that was not necessary. But you know I don't see a widespread attack on open source code. Open source. I've been around for a long time. You know people sharing sharing code and you know writing code together in public view for a long time. There are a lot of benefits to open source code the transparency people can evaluate for themselves what's really happening. You know I think this is mostly like a knee jerk reaction a hasty response to what happened with U.S. and and Luna Reese. So I think regulators are kind of overreacting looking to to protect people. Right. They are looking to protect people. If there's anything that the last couple of months have spotlighted
Jesse that is that there is a lot of risk in these assets and not necessarily many of the protections in place for traditional financial assets as we like to say. There is no FDIC for crypto as we think about the liquidity crisis that has faced so many different players in the crypto industry as a whole. How are you feeling about your position. I know you just finished up your audit for 20 20 to. Right. Yeah. We just finished up our our second audit of the year with the help of Ahmed Nino. So this is a full proof of a proof of reserves which is cryptographic CLI done which allows the users to actually verify for themselves that their balance was included in in the pool of funds that we had audited. So we
have to keep expanding. That's even more assets. We had seven assets covered this time. We'll keep working our way down the list. This is the level of transparency that's not offered in even the banking system. So you know I think it's a step up for crypto and setting a great example for it for the world and you know giving regulators something to feel comfortable about in terms of the liquidity in the market. You know I think that the retail investors have maybe pulled back a bit from from where
they were six months ago. You know I think a lot of great reasons why. I think the macro environment is really tough right now. Inflation seems to be out of control. You know we're we're by all measurements in a recession here in the United States. So that's to be expected. Obviously when people have more discretionary income they're making more investments. I think right now people they've been worried about the price of gas and the price of the living expenses.
When when you look at some of the stable coins which are some of the most widely traded crypto assets in the world are you concerned about the transparency there. I know that regulators want to see more in terms of what tether or circle have backing up these one to one dollar currency claims. Yeah I think it'd be great to get more transparency there. I think circles heavily audited. So you SDC I think is is heavily supervised tethered maybe less so. However I think as you just saw USD DC froze a bunch of funds that were out there that were linked to tornado cash. And there've been some reports that
people were kind of mistakenly frozen there. So you know having a digital currency that's so tightly controlled and able to be influenced by maybe a hasty and maybe an unconstitutional government action is a little bit scary too. So you know I think that while we're we're talking about CBD CS and these stable coins you know people have to think that there's also this risk that these things can be controlled by the government and frozen without any recourse. Overall regulation has been a headache in some ways obviously helpful. But also the fact that it's just not defined enough yet has been a real headache for investors and exchange operators. How much longer do you think we have Jesse on this rocky road before everything's ironed out in terms of Coinbase is trying to decide whether or the regulators are trying to hide whether Coinbase is trading tokens or securities. That should be something that's pretty easy to tell. You would think so. And we're about 13 years on with Bitcoin now.
We still don't have answers from the government on this. You know I think it's largely a legislative failure. I think the regulators are gonna read the law to to increase their scope as much as possible. And as we've seen with the S.E.C. they really take the view that basically everything is a security and they would like to regulate everything and be the regulator of all crypto companies. However I think Coinbase has said that they don't list securities and also does not list securities. So that means there's a disconnect somewhere between our valuation of what these assets are and and the S.E.C. valuation. And we need the legislative show to clean that up. OK so that's a valuation. Let's talk about your evaluation because we have seen the valuations of public companies in the crypto sphere obviously very impacted by the crypto winter. I'm wondering if the worst has been affected and what that may mean for any future raises
you may be looking at. It's hard to know what the private markets. You know obviously we're not tracking the price on a minute by minute basis like the markets are. So it's really hard to know. You know we haven't been out raising capital. We've got a very long runway cash in the bank or profitable. So we don't need to go do another financing anytime soon. I think we'll probably wait for the market to improve before we do
another another round. OK. Fair enough. And finally on the subject of market improvement I just want to get your take on the price we've seen in these crypto assets because you were talking back in 2021 about where you thought Bitcoin would end that year and this year. Just take a listen to what you said. Probably by the end of the year I think it'll be 1 Bitcoin per Lambo and probably by the end of next year it'll be one Bitcoin per Bugatti. So Jesse at the end of 2021 it was trading more around forty six thousand dollars. Today it's trading south of twenty four
thousand dollars which maybe could buy you a Honda Civic. What's your outlook now. Yeah. You know I wasn't expecting all of this crazy craziness in the macro environment. However you know I'm still hopeful that I'll be able to buy everybody by the end of this year for one Bitcoin but I wouldn't hold my hopes out you know. Would you even want to pay for the gas for such a car at this point. So you know I'm still very I'm still very bullish. I bought in Bitcoin again at eighteen thousand so I'm happy to write it all the way back up. I'm still very bullish in the long run. You know the fundamentals keep improving. So I would never bet against
Bitcoin. Jesse thanks so much for joining us. Jesse Powell the CEO of Crack in talking to us about his business and the business of crypto. One Bugatti by the way has 16 cylinders and four turbo chargers things only Matt Miller. The gas would be expensive indeed. Coming up Pat Slovakia CEO of U.S. Digital Securities Trading Platform awaits this pro markets and Nokia. Perhaps its takeover target is now seeking a 100 million dollar termination fee. More details ahead to access all the latest data and news on crypto. Check out. See our wipers go on the terminal. This is Bloomberg.
Institutional interest in digital asset is far from waning. Despite what we're seeing in the markets it speaks to institutional customers very traditional institutional customers wanting to get crypto asset exposure and some validation to the industry to blocking and digital assets. It should be fascinating to watch how between volumes start to gradually move higher over the next year or so before they may be all of a sudden jump. As more institutions do begin to pour into this base because of that integration e different market participants welcoming institutional interest in digital assets.
Let's talk more about that now. Pat Labaki a CEO of Oasis Pro Markets a U.S. digital securities trading platform is joining us right here on set in our New York studio Pat. Great to see you. There seems to be a sense now about institutional buying being resilient even in the face of a crypto winter. It seems though that retail is staying on the sidelines a bit more hesitant to a certain extent. And I'm wondering what you're seeing in activity and and especially those institutional flows if you think they're sticking. Great question. Pleasure to be here. Thank you. Retail is down about 50 percent in terms of volume over the last month or so. So the soft retail is gone. On the institutional front it volumes are down about 40 percent in
terms of crypto. Right. Bitcoin and Ethan and that trading in the arts. What we're seeing is on the high frequency trading side that volume is picked up. And the guess is it's more than the guess. But the view is that what's occurring is late latency arbitrage basically mispricing between exchanges. So the high frequency traders are picking their spots and that's a big part of the big part of the volume that you're seeing. You say it's more than a
guess because obviously you've got a ton of data from Waze as pro to back it up. Tell us about your what do you call it alternative trading sister and how you're regulated. Alternative trading system is different from others. Yeah absolutely. So this is Pro Link. Our holding company is a fintech block chain company. Always Pro Markets is the digital investment bank of the future with an 80 s and 80 s is an alternative trading system. ISE started as an ETF as an example. What makes sense. The NYSE exactly. And that's where the iconic trading system in the world. So so it started. So we're an 80s digital blotch and using the evolution and technology to the
block chain which is really exciting. We can talk about that if you'd like. But what we can do is and what differentiates us is digital cash for digital securities trading. So what's called an atomic swap when you're trading crypto today what's occurring is you're you're trading crypto for crypto digital wallet to digital wallet. It happens almost
instantaneously. We can do that on our RTX with stable coins like USD C and die. For example CBD sees we're actually registered for CBD sees when and if they come as well as certain crypto such as bitcoin and. You could take your holdings in the digital wallet and actually buy digital securities. The benefits of block chain are frankly no T3 or T2 for you. T You know I'd like to say key zero but there's a company out there with that name. So t seconds or milliseconds. Absolutely. And in 10 years we're going to look back and this is
going to be ubiquitous in the markets. The institutions are in this market right now and they're building for it. Some of the benefits of block chain versus you know the current systems which are built on servers from really 1973 is no counterparty risk. So remember EMC and the halting and trading at DTC seed because it's instantaneous settlement lower costs an immutable record. So which should benefit the regulators. Well on the subject of regulation something we were just speaking with Jessie Powell of cracking about and stable points in particular there has been a lot of scrutiny and yet no real action. Do you have to see the action in order to have real conviction in these markets and in these assets. Great great question. I know cryptos have I've been in crypto for about five years. I was a skeptic for the first year. I'm a big believer. Bitcoin ether
stable coins I believe are the future. They're not going away. This tornado cash issue that's come up is a real issue. It's a blender for those who don't understand. So really it makes wallets anonymous and could lead to could lead to nefarious parties utilizing it. See privacy. Yes. That's a whole you know we need to just. You
living your own life. Absolutely. And I do know you've been in the encrypted. About over 10 years so. So that's how it started. But we're regulatory compliance forward so that's always our approach. And in regards to the regulatory framework you know there were analogies in your previous segment regarding cars but the way I view it is that the current regulatory environment not only for cryptos but really for digital securities. And what's occurred with Coinbase naming nine of the S.E.C. naming nine tokens as securities is right now we're a Ferrari with training wheels and the training wheels are tied to the regulators. And eventually those training wheels will be taken off and everybody will benefit the market. Democratization fractional ization trad five firms are moving into this space in terms of the benefits of defy. But it's going to take time. We're we're very early.
All right. We have to leave it there. But thank you so much for joining us here in our New York studio Pat Slovakia's CEO of Oasis Pro Markets. And be sure to check out our Bloomberg crypto podcast as well. It dives deeper than the daily market buzz to explore how this asset class is changing the way we live. Look for that every week through the Bloomberg professional app. I
Heart Radio or wherever you get your podcasts. This is Bloomberg. This is Bloomberg Crypto. Matt Miller with Kailey Leinz. Let's get to some of the crypto stories that caught our eye this week. Around one point nine billion dollars worth of digital tokens have been stolen in hacks this year. That's up 58 percent from the same period last year according to a report from Chain Analysis 5 protocols have emerged as one of the cryptos weakest links after targeting from state sponsored hacking groups from North Korea. Jo Quan co inventor of the failed Terrorist Stable
Points System says South Korean authorities have not been in touch with him. Prosecutors opened a probe into allegations of illegal activity behind terrorist collapse and last week raided the home of co-founder Daniel Shen. Quan said he plans to cooperate when the time comes. And crypto custody firm Bit Goh is seeking a one hundred million dollar termination fee from Mike Novogratz. His Galaxy Digital Galaxy says it is ending the one point two billion dollar acquisition deal after Bitcoin failed to deliver financial statements. Bitcoin says it has since attracted an all cash offer that exceeds Galaxy's deal but
may instead opt for an IPO. And oh by the way it says they did deliver those audited financial statements from twenty one. Yeah definitely quite the dispute. And I love how this show came full circle because at the beginning we were talking about big quote big go and find it perceived due to sanctions violations. Now we're all going to wait and see if Chesty Pal eventually talks
about whether or not Treasury's investigating them on those arranging the Brandt sanctions and what kind of fine could come with that. Yeah that's right. It doesn't seem like it would be a huge fine bit. Go only got fined ninety eight thousand dollars and bid pay was only fined five hundred thousand for more alleged sanctions violations than than crack and probably has. But it will still be interesting. I think this fight with Galaxy Digital is going to be incredibly interesting to watch because Galaxy had a huge loss in the second world order. Half half a billion. More than half a billion dollars. Maybe that's why they've pulled out of the acquisition although they say it's because they haven't got those statements and bingo says they delivered them. Yeah well we'll have to see how Mike Novogratz handles this one. Going forward I have a feeling that it's not going to be wrapped up nice and neatly in a boat with them pursuing that termination fee if that's going to wrap it up for Bloomberg crypto this week. But coming up on next week's show we're going to focus on bitcoin mining. We'll be talking with
IBEX Energy Board member Mike Alfred and Chamber of Digital Commerce founder and President Perry. And. We'll be back same time same place next week Tuesdays 1:00 p.m. Eastern Time right here on Bloomberg.