Speaker 1: This is Bloomberg Crypto, a daily Bloomberg I Heard podcast,
Speaker 1: and I'm Stacy Marie Ishmael, Managing editor of Crypto for
Speaker 1: Bloomberg News. It's Thursday, December eight. There's often in any
Speaker 1: financial market a reasonable amount of group think, sometimes known
Speaker 1: as the herd effect or maybe even a mob mentality.
Speaker 1: There's actually some really interesting research into this. You can
Speaker 1: check out the paper Bubbles, Human Judgment and Expert Opinion
Speaker 1: by Robert J. Schiller for more. Crypto investors are no
Speaker 1: exception to group think, and they're in group behavior comes
Speaker 1: with a lot of catch phrases like the famous GM
Speaker 1: and the infamous have fun staying poor, or the tongue
Speaker 1: in cheek that coin will fix this, where this is
Speaker 1: basically any social or economic issue you can imagine. In
Speaker 1: this episode with Bloomberg Senior editor Mike Gregen, common sense,
Speaker 1: but humans, uh, you know, traditionally aren't the best practitioners
Speaker 1: of common sense and Bloomberg reporter Emily Nicole's it seems crazy.
Speaker 1: Why would you store your money on an exchange where
Speaker 1: it's really difficult to get access to it or you
Speaker 1: don't own the rights to it, Like, isn't that bon
Speaker 1: because we'll tackle the mood among the crypto faithful and
Speaker 1: why some of them are now evangelizing cold wallets. Emily,
Speaker 1: you have written probably more than any of us on
Speaker 1: the team about the culture of crypto, and one of
Speaker 1: the elements of that I think is really reflected in
Speaker 1: the phrase not your keys, not your coins. For the
Speaker 1: people who don't obsessively compulsively read your newsletters on a
Speaker 1: regular basis, can you just explain what that means? So,
Speaker 1: not your keys, not your coins means that if you
Speaker 1: are storing your crypto with a third party online, typically
Speaker 1: there may be something in the terms of service that
Speaker 1: says that while your assets are with that provider, they
Speaker 1: actually own the rights to those assets and not you.
Speaker 1: And it's typically actually the most popular way that at
Speaker 1: least the terms of service act for many of the
Speaker 1: largest providers of crypto custody. So, if you think about
Speaker 1: platforms like Celsius that went by craft earlier this year,
Speaker 1: when you put your assets on Celsius, you didn't actually
Speaker 1: have any claim to those assets once they're in celsius possession,
Speaker 1: because that is how Celsius was able to do things
Speaker 1: with those assets once they had the rights or generate
Speaker 1: the yields for the loans that they were creating. But
Speaker 1: conversely as well, if you think about even the banks
Speaker 1: that offer crypto trading alpha some customers, like in the UK,
Speaker 1: we have an app called Revolute. It's also pretty big
Speaker 1: in Europe any assets that you buy with Revolute. So
Speaker 1: if you can buy bitcoin, you can buy ether. You're
Speaker 1: actually just putting your name attached to a bit of
Speaker 1: bitcoin in revolutes big bitcoin pile, and you don't own
Speaker 1: any rights to that. So it also makes it very
Speaker 1: difficult if you then want to be able to withdraw
Speaker 1: that bitcoin and take it somewhere else. Now, first of all,
Speaker 1: that seems wild in the sense that when you talk
Speaker 1: to crypto folks, and especially when you talk to people
Speaker 1: who describe themselves as bitcoin maximalists, the idea that you
Speaker 1: would knowingly willingly hand over, you know, the right to
Speaker 1: your crypto seems bonkers. But you know, Mike, something that
Speaker 1: you have addressed kind of similar to the idea of
Speaker 1: you know, culture, is kind of this idea of like convenience, Right,
Speaker 1: it is really hard actually to hold onto your own stuff,
Speaker 1: and so you've got people who are like one, surely
Speaker 1: they'll give me back if I ask demonstrates it not
Speaker 1: necessarily and too well, surely they're not doing anything nefarious
Speaker 1: with that. Also tvd SO, on the podcast that you
Speaker 1: host with vill Donna What Goes Up, you had a
Speaker 1: guest Leo Wold recently who started talking about cold wallets. Now,
Speaker 1: cold wallets emerged as this idea of Okay, people may
Speaker 1: do nefarious things, people may go bust, here's how to
Speaker 1: keep your keys safe. What is that like in practice? Well,
Speaker 1: you know, I think it gets to the heart of
Speaker 1: the fact that people trust the blockchain itself, especially with Bitcoin.
Speaker 1: They don't trust all these other intermediate mediaries who are
Speaker 1: working on top of the blockchain. And I think that's
Speaker 1: really a lesson that's come back home. You know. There
Speaker 1: seems to have been a complacency that had grown around
Speaker 1: the likes of a huge exchange like f t x
Speaker 1: H and all the others. And in practice, it's it's
Speaker 1: really getting back to that notion not your keys, not
Speaker 1: your coins. People want to hold these private keys somewhere
Speaker 1: safe offline. And if you look at the data, there's
Speaker 1: a website crypto quant that tracks a whole bunch of things.
Speaker 1: But one of the things I'm fascinated in is how
Speaker 1: much bitcoin is being withdrawn from exchanges and put presumably
Speaker 1: in cold storage. And in the middle of November, something
Speaker 1: like half a billion dollars worth of bitcoin a day,
Speaker 1: something like twenty nine thousand bitcoins a day, we're getting
Speaker 1: yanked off of exchanges. The problem though, is that, you know,
Speaker 1: you put those private keys on a hard drive, and
Speaker 1: we've all heard the hilariously sad stories of people losing
Speaker 1: their hard drive forgetting the passwords of their hard drive,
Speaker 1: or you know the one poor guy I think it
Speaker 1: was in Wales, we threw it out and was trying
Speaker 1: to bribe the people at the dump to let him
Speaker 1: go dig dig around for his hard drive because the
Speaker 1: value of the bitcoin had had gone up so much.
Speaker 1: So there are companies that offer this service as well.
Speaker 1: But I think you know, this emoil we've seen in
Speaker 1: the last month or so has really revived that whole
Speaker 1: notion of you wanted those private keys as close to
Speaker 1: possible and as safe a place as possible, and for
Speaker 1: many of that is simply on a hard drive that
Speaker 1: you can put in a safe, put in your closet,
Speaker 1: put wherever there's one. A few interesting ones have come
Speaker 1: out recently to regarding n f T s, there's now
Speaker 1: cold storage. While it's where you can store your n
Speaker 1: f T s but also show them off to your friends.
Speaker 1: It looks like a little iPhone, so you can sort
Speaker 1: of scroll through your n f T collection, but it's
Speaker 1: in cold storage, meaning it's not connected to the internet.
Speaker 1: No one can sort of reach in through the internet.
Speaker 1: Somebody could steal your little device. Someone could yeah where
Speaker 1: you could put it in the dump and and have
Speaker 1: to drive a trashman to get one of the things.
Speaker 1: I always remind people that, in addition to the joke
Speaker 1: that you know will kind of make where it's like
Speaker 1: ha ha, underlying technology crypto is also just tech, right,
Speaker 1: and so getting people to memorize passwords very different. Cold problem.
Speaker 1: Getting people to back up there are hard drives, very
Speaker 1: difficult problem. Like the number of people in my own
Speaker 1: family shout out to my family who are like, well,
Speaker 1: you know, I know you said to back up these files,
Speaker 1: but I didn't. Are they gone forever? And I'm like,
Speaker 1: oh my god, I could be a member of your family.
Speaker 1: I feel like, so you you layer on top of
Speaker 1: shall we say, the default stands of human beings which
Speaker 1: is not to do the right thing when it comes
Speaker 1: to tech because it's annoying. And then you say and
Speaker 1: make that potentially be worth tens of thousands, if not
Speaker 1: millions of dollars. How do we solve that tension? How
Speaker 1: are people trying to solve this tension? You know, I'm
Speaker 1: not sure you do. And I think what happens is um,
Speaker 1: you know, maybe you put your coins in cold storage
Speaker 1: when the coins at dollars ethereums at three thousand and
Speaker 1: prices collapse and then you kind of forget about them,
Speaker 1: you know, and then five years goes by, ten years
Speaker 1: go by, and a wait a minute, I I'm a
Speaker 1: bitcoin millionaire. Where is that hard drive? What is the password?
Speaker 1: So I think it's at your point, I think it's
Speaker 1: human nature. There is no simple, elegant solution for it
Speaker 1: other than the things you're talking about. You know, back
Speaker 1: it up, don't leave it somewhere in the sun, if
Speaker 1: it's a hard drive, if don't let your kids. Yeah,
Speaker 1: I mean it's common sense, but humans, uh, you know,
Speaker 1: traditionally aren't the best practitioners of common sense. So you know,
Speaker 1: the one thing I would say is that when a
Speaker 1: lot of these coins get moved off the exchanges. It
Speaker 1: used to be considered a very bullish thing, right, Oh,
Speaker 1: people are pulling them off the exchanges. That means well,
Speaker 1: at least they're not trying to sell them. If you
Speaker 1: see an influx of coins back onto exchanges, the thinking is, well,
Speaker 1: they're all getting ready to sell. But I think that
Speaker 1: signal might be broken at the moment. I don't think
Speaker 1: you can, you know, assume that because people are so
Speaker 1: paranoid about every company involved in crypto, that it's a
Speaker 1: bullish thing that they're they're moving their coins into cold storage.
Speaker 1: I think it's it's just survived at this point. And Emily,
Speaker 1: you know, you pay a lot of attention to shall
Speaker 1: we say, the sentiment negative or positive of folks in
Speaker 1: and around crypto, not just institutional investors, but also you know,
Speaker 1: like retail investors on crypto Twitter. What have you observed
Speaker 1: to Reagan's point about what folks are doing. I think
Speaker 1: the one thing that stood out to me a lot
Speaker 1: is that in this particular cycle of people moving money
Speaker 1: back and forth between like cold wallets or online exchange wallets,
Speaker 1: hot wallets, is that during this period of tumult a
Speaker 1: lot of the typical resort um last resort for crypto
Speaker 1: investors is that it's time to build it. Is what
Speaker 1: you hear a lot of companies say during this time
Speaker 1: is that okay, well, okay, no one's trading and everyone's
Speaker 1: moving their coins off the exchange. Is there's time to
Speaker 1: figure out how to build something coolse they come back
Speaker 1: and in that one of the top things is how
Speaker 1: do we make it easier for p or to interact
Speaker 1: with things like cold wallets or interact with things that
Speaker 1: there are on exchanges, because it's like, at the beginning
Speaker 1: of this episode, we said, it seems crazy. Why would
Speaker 1: you store your money on an exchange where it's really
Speaker 1: difficult to get access to it or you don't own
Speaker 1: the rights to it, Like it isn't that bonkers. But
Speaker 1: the reason they do that is because it's really difficult
Speaker 1: to stow it on a cold wallet. You're going to
Speaker 1: forget your password. And so one of the biggest challenges
Speaker 1: I think that crypto investors talk about is how do
Speaker 1: we make it more palaceable for the masses, Because it's
Speaker 1: not just that you know, bitcoin goes up and down
Speaker 1: and you might lose all your money. It's also that
Speaker 1: the digital literacy is a thing, and it's not even
Speaker 1: that you have to be digitally literate not to get crypto.
Speaker 1: You can be incredibly digital litteral and still not get crypto. Well,
Speaker 1: you know, in traditional finance tradfy as it were, the
Speaker 1: way that folks have solved this is with regulation and
Speaker 1: legal precedents. Right, Like, if you put your money in
Speaker 1: a bank and the bank goes under up to US
Speaker 1: or an amount, you will get your dollars back. It's
Speaker 1: not even any kind of a well did city but no,
Speaker 1: So if you had up to two hundred fifty dollars
Speaker 1: in the US and the bank goes onto you're gonna
Speaker 1: get your money back. And so I find it a
Speaker 1: little bit challenging to square this idea of folks in
Speaker 1: crypto saying we want to make it more palatable for
Speaker 1: retail investors while simultaneously saying we don't want any additional
Speaker 1: government interaction with our asset class. There's a big elephant
Speaker 1: in the room here in that no one knows legally
Speaker 1: if a company like FDx files for bankruptcy, where the
Speaker 1: people who had deposited coins, where they stand in sort
Speaker 1: of the hierarchy of who gets paid out in a
Speaker 1: bankruptcy filing. You know, there are they secured creditors, so
Speaker 1: they get paid out ahead of non secured creditors. That
Speaker 1: hasn't been tested in the bankruptcy courts. And if you
Speaker 1: read coin bases, I'm one of my hobbies is reading
Speaker 1: risk factors of public companies. If you read coin bases
Speaker 1: risk factors in their sec filings, they'll say fingers crossed.
Speaker 1: You know, they don't really say fingers crossed. I'm atting that,
Speaker 1: but it's it's implied that we think in a potential
Speaker 1: bankruptcy and no one saying coin bas is gonna go bankruptcy,
Speaker 1: but these risk factors you have to give every possible
Speaker 1: dire scenario, and they're saying, you know, in the event
Speaker 1: of bankruptcy, we think that people who have come to
Speaker 1: us for custody of of their coins, which is not
Speaker 1: just you know, mom and pop traders, that could be
Speaker 1: you know, funds, big time players, we think that the
Speaker 1: courts will decide that they will get paid back their
Speaker 1: crypto holdings. But it's not It hasn't been really tested
Speaker 1: and appealed and everything in courts, so no one really knows.
Speaker 1: As a depositor in one of these exchanges were lenders
Speaker 1: or any other crypto company. What's to become of those
Speaker 1: coins in a bankruptcy? How you'll get treated by the
Speaker 1: bankruptcy court as a client of of one of these companies.
Speaker 1: I feel like because all roads seem to lead back
Speaker 1: to Matt Levine somehow when it comes to this, it's
Speaker 1: it's very much the this isn't actually a trust less ecosystem.
Speaker 1: Like the amount of faith you have to have in
Speaker 1: different things working in order to navigate the system right
Speaker 1: now seems to be at an all time high. Up next,
Speaker 1: more from Bloomberg's Mike Reagan and Emmelin Nicole on the
Speaker 1: crypto faithful Emily or maybe you, Mike, in your you know,
Speaker 1: the time that you've been reporting on crypto, even just
Speaker 1: in the past twelve months, do you think there's been
Speaker 1: a shift in like the level of kind of aggression
Speaker 1: around you know, some very straightforward types of reporting that's
Speaker 1: happening because the market has gone down because of this
Speaker 1: collapse of trust, Like what are you seeing? Yeah, for sure,
Speaker 1: I Mean there's kind of two prongs to it, right
Speaker 1: in that on the one hand, the aggression is stemming
Speaker 1: from now, especially in a post FTX world, even though
Speaker 1: is at the very top of these companies like Finance
Speaker 1: Yo s e Z say, Okay, I'm going to be
Speaker 1: more proactive in calling out what I think could be
Speaker 1: fraud because maybe it'll give everybody the warning clients they
Speaker 1: needed to have spotted FDx before it happened. Actually reflect
Speaker 1: on the SCS situation, and I kind of blame myself
Speaker 1: for tweeting that too late. I think as the industry,
Speaker 1: we let fts got too too big before we started
Speaker 1: questions someone those things. So I'm taking the approach where
Speaker 1: we ask questions much earlier, and that has already resulted
Speaker 1: in several instances of him tweeting something and then having
Speaker 1: to delete the tweet because actually it caused more fear
Speaker 1: and uncertainty and doubt than it was supposed to do.
Speaker 1: The opposite um But on the other hand, there's also
Speaker 1: more aggression around trying to be more stable with what
Speaker 1: you're putting out there about your own company. But if
Speaker 1: you're an investor and you have your own portfolio, you
Speaker 1: want to make sure that the tokens that you hold
Speaker 1: aren't coming under dress unnecessarily, and so you'll sit, you'll
Speaker 1: jump in quickly when you hear someone saying something that
Speaker 1: you think is inaccurate to say, actually, hold on, here's
Speaker 1: what I think. And the finance example you gave of
Speaker 1: the two billion is a great example of that, because
Speaker 1: we see this spot tweet out that two billion in
Speaker 1: bitcoin is moving. Um Zi rapidly says, this is just
Speaker 1: you know, us doing something for our orders Too who
Speaker 1: asked it for our proof of reserves. But then we've
Speaker 1: already heard from others like Mirror Cristanto, who works for
Speaker 1: a digital currency group, saying that actually, an Orders Too
Speaker 1: would never ask you to do that because that's a
Speaker 1: financial liability for them, And then you don't really know
Speaker 1: who's trust right, and it leaves you in the in
Speaker 1: this limbo. And in a way, I think this all
Speaker 1: to me looks like the market is trying to do
Speaker 1: what regulators would do if if they could wrap their
Speaker 1: hands around this, which is sort of force some accountability
Speaker 1: on these companies, force more transparency with the proof of reserves.
Speaker 1: And it reminds me of something we wrote a while ago,
Speaker 1: that notion of crossing the chasm, you know, going from
Speaker 1: early adopters who are you know, comfortable working with private
Speaker 1: keys and and that sort of thing to sort of
Speaker 1: a more mainstream adoption where you have these big, you know,
Speaker 1: centralized exchanges and players and sort of being forced to
Speaker 1: mature and provide the type of disclosure, the type of
Speaker 1: transparency really build. The type of confidence that you know,
Speaker 1: decades of regulation did in the radifi world is really
Speaker 1: being forced on them now, not by regulators but by
Speaker 1: the market itself, by the players in the market who
Speaker 1: are like, enough is enough. You know, you need to
Speaker 1: do this, that and the other thing to really have
Speaker 1: our confidence going forward. Yeah, it reminds me of a
Speaker 1: phrase in kind of sociology called context collapse, right, which
Speaker 1: is what happens when a conversation or a set of
Speaker 1: idioms move from the people who have a really sophisticated
Speaker 1: understanding what's happening into into kind of the mainstream. And
Speaker 1: I really think that a fascinating dynamic has been the
Speaker 1: rate at which and actually going back, crypto hit the
Speaker 1: mainstream on an upswing. It was, you know, Matt Damon
Speaker 1: and Tom Brady are telling you to buy to buy
Speaker 1: crypto and buy n f T s and then it
Speaker 1: hit their downstream really really fast at the same time,
Speaker 1: and folks have a kind of a cultural whiplash, as in,
Speaker 1: is this thing good? Is this thing bad? Is it
Speaker 1: the worst thing ever? Is it the best thing ever?
Speaker 1: I just can't felt um. And you don't really get
Speaker 1: the impression that the industry itself was like prepared to
Speaker 1: navigate all this, but you're right, absolutely not. And you know,
Speaker 1: the due diligence was in a bull market is something
Speaker 1: that seems to have been deferred. Oh, this company is
Speaker 1: invested in that one. I I can trust that they've
Speaker 1: done the due diligence. No one really seemed to do
Speaker 1: the homework they should have done, because if you waited
Speaker 1: too long to do it, you missed out, You missed
Speaker 1: the rallies. So you know, these periods of market destruction
Speaker 1: can be creative destruction in a way, and that they
Speaker 1: will cause an outcome where, you know, problems get fixed,
Speaker 1: confidence restored, one would hope, but you know, you never
Speaker 1: know how long it's going to take to to sort
Speaker 1: of really get it back into the full swing of
Speaker 1: things like we saw in Alright. Well, thank you both
Speaker 1: of being on the show. Thank you, thank you. You
Speaker 1: can find more of Mike Reagan and emilin Nicole's work
Speaker 1: on the Bloomberg Terminal and on Bloomberg dot com, and
Speaker 1: of course, check out Mike's podcast that he hosts with
Speaker 1: friends of the show Bill Donna, called What Goes Up.
Speaker 1: This is Bloomberg Crypto, a daily podcast from Bloomberg and
Speaker 1: I Heeart Radio. For more shows from I Heeart Radio,
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Speaker 1: you get your podcasts. Send us your comments, questions, or
Speaker 1: suggestions for the show to Crypto at Bloomberg dot net.
Speaker 1: The supervising producer of Bloomberg Crypto is Vicky very Galina.
Speaker 1: Our senior producer is Janet Babin. Our producers are Mohammed
Speaker 1: Farruk and Sharon Barriro. Our associate producers are Ty Butler
Speaker 1: and Moses on Them. Desta wonder At is our engineer.
Speaker 1: Original music by Leo Sidron. I'm Stacy Maria Schmal. We'll
Speaker 1: be back tomorrow.