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 Monday, December twelve. What do pandemic stimulus
Speaker 1: funds a k a. Stimmy checks have to do with
Speaker 1: the recent collapse of crypto prices and of entities like
Speaker 1: ft X. According to Bloomberg opinion writer Robert Burgess, also
Speaker 1: known as Bob, the answer is basically everything. As he
Speaker 1: wrote in a recent column, and I quote, when historians
Speaker 1: look back on the spectacular rise and collapse of the
Speaker 1: cryptocurrency market, they will conclude that it couldn't have happened
Speaker 1: without the pandemic, and they'd be right. Is this a
Speaker 1: controversial opinion? People were sitting on a lot of cash
Speaker 1: and not I think anything to do so A lot
Speaker 1: of this money had to go somewhere, and I believe that,
Speaker 1: you know, crypto was a natural outlet for more. Bob
Speaker 1: joins us. Now, Bob, welcome to the podcast. Thank you
Speaker 1: for owning me an absolute pleasure. I couldn't resist quoting
Speaker 1: your column in which you sort of attributed at least
Speaker 1: one of the causes for the current collapse in the
Speaker 1: crypto market too easy money? Can you say more about that? Yeah,
Speaker 1: when all this went down, um, starting earlier this month
Speaker 1: in November, I wanted to put the crash in the
Speaker 1: crypto markets and the bankruptcy of f t X into
Speaker 1: a bit of a long term context, And to me,
Speaker 1: it was as plain as day that the the rise
Speaker 1: of cryptol and the speculative excesses that we've seen were
Speaker 1: a direct result of more than a dozen years of
Speaker 1: easy money policies. And you know, more than a dozen years.
Speaker 1: That's sort of going back to what my friends and
Speaker 1: e con like to talk about in terms of quantitative easing,
Speaker 1: which whenever I asked them to define it, they kind
Speaker 1: of runaway. So I'm going to ask you to just
Speaker 1: explain exactly what that is. Sure, I guess you just
Speaker 1: for a little bit of a preamble. You know, coming
Speaker 1: out of the financial crisis of two thousand and eight
Speaker 1: and two thousand nine, when the financial system um basically
Speaker 1: seized up, the Federal Reserve and other central banks essentially
Speaker 1: started printing money that they can inject directly into the
Speaker 1: financial shole system so that the plumbing of the financial
Speaker 1: system kept running. I mean, we were very close to
Speaker 1: you walking up to your local A T M and
Speaker 1: not having any money spit out of it. That's how
Speaker 1: severe that episode was. And the way the central banks
Speaker 1: do this is, you know, they basically create money and
Speaker 1: by bonds and of our financial assets, and that that
Speaker 1: money that they used to purchase those assets go right
Speaker 1: into the financial system. And to use the phrase from
Speaker 1: your column you wrote, you know, the financial system was
Speaker 1: overwhelmed with cash in a remarkably short period of time.
Speaker 1: Citing that data point that you've just shared, draw a
Speaker 1: picture for me of how we get from you know,
Speaker 1: central banks trying to bail out the financial system in
Speaker 1: a crisis, to crypto prices going higher and then lower. Yeah.
Speaker 1: I think that at the beginning of the pandemic UM,
Speaker 1: when economies around the world were locked down, that's when
Speaker 1: UM things really picked up. Central banks UM increased their
Speaker 1: level of quantitative easing, and governments were forced to do
Speaker 1: some level of fiscal stimulus, whether it's through the loans
Speaker 1: that the government gave businesses to see them through the
Speaker 1: tough times, or whether it was the extra unemployment benefits
Speaker 1: UM that the governments were giving laid off workers and
Speaker 1: sometimes you know, even direct payments. We went the global
Speaker 1: money supply of the US, China, Eurozone, Japan and eight
Speaker 1: other major developed economies searched by twenty one point five
Speaker 1: trillion dollars over one as governments and central banks trying
Speaker 1: to say their economies and that the money supply went
Speaker 1: to hundred two trillion, It just wants to have just
Speaker 1: to put that in context. That one trillion of cash
Speaker 1: and that was created over those two years was more
Speaker 1: than the previous seven years combined. It was just a
Speaker 1: tremendous amount of money going into the financial system in
Speaker 1: a very short period of time. So you've got a
Speaker 1: fair amount of discretionary income, right, You know, people are
Speaker 1: able to meet their basic needs. Also, they couldn't really
Speaker 1: go outside and do stuff, so they were looking for
Speaker 1: needs that you know, we were looking for needs that
Speaker 1: we could meet from lockdown. Your your premise is that
Speaker 1: at least some of that additional discretionary income flowed into cryptocurrencies. Yeah,
Speaker 1: it wasn't just discretionary income. I mean, just look at
Speaker 1: it another way. Just using the United States as a
Speaker 1: specific example, A columnists look at something called excess savings,
Speaker 1: which is basically just money that you have in your
Speaker 1: savings account UM. Usually that stands out around one to
Speaker 1: five trained lars, and it's been pretty steady, you know,
Speaker 1: over the last ten years leading into but because of
Speaker 1: all these programs, that number that excess savings that people
Speaker 1: have in their checking accounts shot up to four point
Speaker 1: five trillion dollars from one point to so people were
Speaker 1: sitting on a lot of cash and not having anything
Speaker 1: to do, not not being able to do anything with it.
Speaker 1: So what they did is it was like, well, let's
Speaker 1: invest this money. They're not going to go into bonds
Speaker 1: because bonds are paying nothing at the time, right, you know,
Speaker 1: just consider that we had eighteen trillion dollars of bonds
Speaker 1: that actually paid negative fields, right, maybe that you're paying
Speaker 1: governments to allars your money. Stock prices UM stock values
Speaker 1: were at record highs, So a lot of this money
Speaker 1: had to go somewhere, and I believe that, you know,
Speaker 1: crypto was a natural outlet. And I think you can
Speaker 1: see that in some of the data about the crypto industry.
Speaker 1: Right we went from less than three thousand crypto currencies
Speaker 1: in two thousand nineteen two over ten that's an amazing
Speaker 1: amount of growth. Well as We've reported both my as
Speaker 1: my colleagues of reports, and we've mentioned in this podcast
Speaker 1: most of those tokens are what we would call like
Speaker 1: zombie coins, right like, they don't they don't super trade,
Speaker 1: they're not particularly liquid. Their market value is in the
Speaker 1: tens of dollars of the hundreds of dollars in some cases. Um,
Speaker 1: but I'm interested in this because you know, I can't
Speaker 1: remember affectiated on this on the show. So if it's
Speaker 1: the first time, welcome to everybody. I've long had a
Speaker 1: theory that there is an impulse shared by certain kinds
Speaker 1: of speculators in crypto, which is similar to the energy
Speaker 1: we store around like meme stocks that we see in
Speaker 1: online betting in sports betting, where it's a combination of
Speaker 1: I have some excess savings. As you say, there, this
Speaker 1: is fun, risk is fun. These returns seem interesting. There's
Speaker 1: a community around this, you know, whether it's a message
Speaker 1: board or a Reddit group or like an athlete telling
Speaker 1: you should buy bitcoin. So do you think that the
Speaker 1: move into crypto was going to happen kind of anyway
Speaker 1: because it was an asset class that was attracting attention
Speaker 1: or was there anything about one that induced more people
Speaker 1: than you might expect in that direction. In my column,
Speaker 1: I think it was pretty clearness sense that I didn't
Speaker 1: think that we would have seen all the excesses that
Speaker 1: we did in the crypto market over and by the way,
Speaker 1: and another financial assets as well, right, whether it be
Speaker 1: the stock market which had a tremendous run, whether it
Speaker 1: be in housing right, which had a tremendous run, prices
Speaker 1: rising um much more than they have been historically, and
Speaker 1: crypto was just part of that, right, And so you know,
Speaker 1: what happened in the crypto market didn't happen in isolation.
Speaker 1: It was also happening in conjunction with what we were
Speaker 1: seeing in other financial assets. So I think that you know,
Speaker 1: if the pandemic didn't come along, if the central banks
Speaker 1: didn't ramp up their easy money policies, you know, if
Speaker 1: the governments did not um start pumping twis dollars into
Speaker 1: the economy through physical stimulus, we probably wouldn't have seen
Speaker 1: what we saw in the crypto market over twenty We'll
Speaker 1: be right back with more from Bloomberg's Bob Burgess. Now
Speaker 1: one of your charts, because we love a chart for Bloomberg.
Speaker 1: One of the charts in your column pointed out the
Speaker 1: fact that as interest rates started rising, crypto prices started fulling.
Speaker 1: So there's kind of a clear correlation there. But what
Speaker 1: for you is the causation. Was it that people were like, oh,
Speaker 1: bonds suddenly seem more attractive. Is there really an investor
Speaker 1: who's like, choices are between bitcoin and bonds or was
Speaker 1: something else going on here? Yeah? I think it's a
Speaker 1: sort of a combination of of all that. You know,
Speaker 1: it's in markets, it's always impossible to you know, boil
Speaker 1: it down to one sort of comment denominator. But a
Speaker 1: big thing I think is just, you know, the the
Speaker 1: issue of alternatives, right. I mean, you know, there was
Speaker 1: this acronym um that was invented called tina t I
Speaker 1: n A. There is no alternative to stocks, right, and
Speaker 1: that's why we saw the big, you know, surge in
Speaker 1: the stock market because people didn't want to buy bonds.
Speaker 1: Is the contre paying nothing? You know, you can go
Speaker 1: to your bank and you can look at your past
Speaker 1: book savings account and you're getting just a couple of
Speaker 1: basis points and the same thing on certificates of deposit.
Speaker 1: They were paying nothing, And where else were you going
Speaker 1: to put your money right, and but now that's starting
Speaker 1: to turn a bent, Right, there are alternatives. You just
Speaker 1: look at the lowly treasury bills, right, you can give
Speaker 1: your money to the government for three months and get
Speaker 1: a four percent um rate of return on that. That's
Speaker 1: pretty attractive, you know, um, And you know, I think
Speaker 1: that's drawing a lot of money, um, you know out
Speaker 1: of the crypto market and out of the stock market
Speaker 1: and some of these other places where we see it existence.
Speaker 1: Given that premise, do you think, in the unlikely event
Speaker 1: that interest rates are going to like fall dramatically anytime soon,
Speaker 1: that where we are with crypto is like where it's
Speaker 1: likely to sort of persist. You know that that's a
Speaker 1: good question. I I have. I have no idea what
Speaker 1: happened in the crypto market. I mean, if you look
Speaker 1: at the history you know of the crypto market going
Speaker 1: back to two thousand, you know, six and seven, you
Speaker 1: know there's a history of tremendous booms and busts, and
Speaker 1: you know you can't rule that out happening again. But
Speaker 1: I think would also, you know, come down to if
Speaker 1: interest rates do start to decline, why are they declining? Right?
Speaker 1: I mean, are they declining because we've beaten inflation, or
Speaker 1: we declining because the economy is just in such horrible
Speaker 1: shape that we're in a deep procession. You know, if
Speaker 1: it's the ladder is the case, then I think people
Speaker 1: are going to hunker down and not going to be
Speaker 1: looking at um making sort of uh, looking at speculative
Speaker 1: assets to put their money. They'll look to save it. Well, Bob,
Speaker 1: thank you so much for taking this time to during
Speaker 1: the podcast today. I really appreciate it. Thank you for
Speaker 1: having me. You can find more of his work on
Speaker 1: the work terminal and on Bloomberg dot com, and if
Speaker 1: you feel so moved, you can check out our twice
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Speaker 1: I'm Stacy Marie Schmall. We'll be back tomorrow. Sat at everything,
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