WEBVTT - What Do Stimulus Checks Have to do With Crypto Winter?

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<v Speaker 1>This is Bloomberg Crypto, a daily Bloomberg I heard podcast,

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<v Speaker 1>and I'm Stacy Marie Ishmael, Managing editor of Crypto for

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<v Speaker 1>Bloomberg News. It's Monday, December twelve. What do pandemic stimulus

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<v Speaker 1>funds a k a. Stimmy checks have to do with

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<v Speaker 1>the recent collapse of crypto prices and of entities like

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<v Speaker 1>ft X. According to Bloomberg opinion writer Robert Burgess, also

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<v Speaker 1>known as Bob, the answer is basically everything. As he

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<v Speaker 1>wrote in a recent column, and I quote, when historians

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<v Speaker 1>look back on the spectacular rise and collapse of the

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<v Speaker 1>cryptocurrency market, they will conclude that it couldn't have happened

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<v Speaker 1>without the pandemic, and they'd be right. Is this a

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<v Speaker 1>controversial opinion? People were sitting on a lot of cash

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<v Speaker 1>and not I think anything to do so A lot

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<v Speaker 1>of this money had to go somewhere, and I believe that,

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<v Speaker 1>you know, crypto was a natural outlet for more. Bob

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<v Speaker 1>joins us. Now, Bob, welcome to the podcast. Thank you

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<v Speaker 1>for owning me an absolute pleasure. I couldn't resist quoting

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<v Speaker 1>your column in which you sort of attributed at least

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<v Speaker 1>one of the causes for the current collapse in the

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<v Speaker 1>crypto market too easy money? Can you say more about that? Yeah,

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<v Speaker 1>when all this went down, um, starting earlier this month

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<v Speaker 1>in November, I wanted to put the crash in the

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<v Speaker 1>crypto markets and the bankruptcy of f t X into

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<v Speaker 1>a bit of a long term context, And to me,

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<v Speaker 1>it was as plain as day that the the rise

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<v Speaker 1>of cryptol and the speculative excesses that we've seen were

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<v Speaker 1>a direct result of more than a dozen years of

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<v Speaker 1>easy money policies. And you know, more than a dozen years.

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<v Speaker 1>That's sort of going back to what my friends and

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<v Speaker 1>e con like to talk about in terms of quantitative easing,

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<v Speaker 1>which whenever I asked them to define it, they kind

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<v Speaker 1>of runaway. So I'm going to ask you to just

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<v Speaker 1>explain exactly what that is. Sure, I guess you just

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<v Speaker 1>for a little bit of a preamble. You know, coming

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<v Speaker 1>out of the financial crisis of two thousand and eight

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<v Speaker 1>and two thousand nine, when the financial system um basically

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<v Speaker 1>seized up, the Federal Reserve and other central banks essentially

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<v Speaker 1>started printing money that they can inject directly into the

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<v Speaker 1>financial shole system so that the plumbing of the financial

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<v Speaker 1>system kept running. I mean, we were very close to

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<v Speaker 1>you walking up to your local A T M and

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<v Speaker 1>not having any money spit out of it. That's how

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<v Speaker 1>severe that episode was. And the way the central banks

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<v Speaker 1>do this is, you know, they basically create money and

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<v Speaker 1>by bonds and of our financial assets, and that that

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<v Speaker 1>money that they used to purchase those assets go right

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<v Speaker 1>into the financial system. And to use the phrase from

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<v Speaker 1>your column you wrote, you know, the financial system was

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<v Speaker 1>overwhelmed with cash in a remarkably short period of time.

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<v Speaker 1>Citing that data point that you've just shared, draw a

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<v Speaker 1>picture for me of how we get from you know,

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<v Speaker 1>central banks trying to bail out the financial system in

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<v Speaker 1>a crisis, to crypto prices going higher and then lower. Yeah.

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<v Speaker 1>I think that at the beginning of the pandemic UM,

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<v Speaker 1>when economies around the world were locked down, that's when

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<v Speaker 1>UM things really picked up. Central banks UM increased their

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<v Speaker 1>level of quantitative easing, and governments were forced to do

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<v Speaker 1>some level of fiscal stimulus, whether it's through the loans

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<v Speaker 1>that the government gave businesses to see them through the

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<v Speaker 1>tough times, or whether it was the extra unemployment benefits

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<v Speaker 1>UM that the governments were giving laid off workers and

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<v Speaker 1>sometimes you know, even direct payments. We went the global

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<v Speaker 1>money supply of the US, China, Eurozone, Japan and eight

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<v Speaker 1>other major developed economies searched by twenty one point five

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<v Speaker 1>trillion dollars over one as governments and central banks trying

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<v Speaker 1>to say their economies and that the money supply went

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<v Speaker 1>to hundred two trillion, It just wants to have just

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<v Speaker 1>to put that in context. That one trillion of cash

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<v Speaker 1>and that was created over those two years was more

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<v Speaker 1>than the previous seven years combined. It was just a

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<v Speaker 1>tremendous amount of money going into the financial system in

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<v Speaker 1>a very short period of time. So you've got a

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<v Speaker 1>fair amount of discretionary income, right, You know, people are

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<v Speaker 1>able to meet their basic needs. Also, they couldn't really

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<v Speaker 1>go outside and do stuff, so they were looking for

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<v Speaker 1>needs that you know, we were looking for needs that

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<v Speaker 1>we could meet from lockdown. Your your premise is that

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<v Speaker 1>at least some of that additional discretionary income flowed into cryptocurrencies. Yeah,

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<v Speaker 1>it wasn't just discretionary income. I mean, just look at

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<v Speaker 1>it another way. Just using the United States as a

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<v Speaker 1>specific example, A columnists look at something called excess savings,

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<v Speaker 1>which is basically just money that you have in your

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<v Speaker 1>savings account UM. Usually that stands out around one to

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<v Speaker 1>five trained lars, and it's been pretty steady, you know,

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<v Speaker 1>over the last ten years leading into but because of

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<v Speaker 1>all these programs, that number that excess savings that people

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<v Speaker 1>have in their checking accounts shot up to four point

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<v Speaker 1>five trillion dollars from one point to so people were

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<v Speaker 1>sitting on a lot of cash and not having anything

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<v Speaker 1>to do, not not being able to do anything with it.

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<v Speaker 1>So what they did is it was like, well, let's

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<v Speaker 1>invest this money. They're not going to go into bonds

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<v Speaker 1>because bonds are paying nothing at the time, right, you know,

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<v Speaker 1>just consider that we had eighteen trillion dollars of bonds

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<v Speaker 1>that actually paid negative fields, right, maybe that you're paying

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<v Speaker 1>governments to allars your money. Stock prices UM stock values

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<v Speaker 1>were at record highs, So a lot of this money

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<v Speaker 1>had to go somewhere, and I believe that, you know,

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<v Speaker 1>crypto was a natural outlet. And I think you can

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<v Speaker 1>see that in some of the data about the crypto industry.

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<v Speaker 1>Right we went from less than three thousand crypto currencies

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<v Speaker 1>in two thousand nineteen two over ten that's an amazing

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<v Speaker 1>amount of growth. Well as We've reported both my as

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<v Speaker 1>my colleagues of reports, and we've mentioned in this podcast

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<v Speaker 1>most of those tokens are what we would call like

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<v Speaker 1>zombie coins, right like, they don't they don't super trade,

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<v Speaker 1>they're not particularly liquid. Their market value is in the

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<v Speaker 1>tens of dollars of the hundreds of dollars in some cases. Um,

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<v Speaker 1>but I'm interested in this because you know, I can't

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<v Speaker 1>remember affectiated on this on the show. So if it's

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<v Speaker 1>the first time, welcome to everybody. I've long had a

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<v Speaker 1>theory that there is an impulse shared by certain kinds

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<v Speaker 1>of speculators in crypto, which is similar to the energy

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<v Speaker 1>we store around like meme stocks that we see in

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<v Speaker 1>online betting in sports betting, where it's a combination of

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<v Speaker 1>I have some excess savings. As you say, there, this

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<v Speaker 1>is fun, risk is fun. These returns seem interesting. There's

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<v Speaker 1>a community around this, you know, whether it's a message

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<v Speaker 1>board or a Reddit group or like an athlete telling

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<v Speaker 1>you should buy bitcoin. So do you think that the

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<v Speaker 1>move into crypto was going to happen kind of anyway

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<v Speaker 1>because it was an asset class that was attracting attention

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<v Speaker 1>or was there anything about one that induced more people

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<v Speaker 1>than you might expect in that direction. In my column,

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<v Speaker 1>I think it was pretty clearness sense that I didn't

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<v Speaker 1>think that we would have seen all the excesses that

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<v Speaker 1>we did in the crypto market over and by the way,

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<v Speaker 1>and another financial assets as well, right, whether it be

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<v Speaker 1>the stock market which had a tremendous run, whether it

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<v Speaker 1>be in housing right, which had a tremendous run, prices

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<v Speaker 1>rising um much more than they have been historically, and

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<v Speaker 1>crypto was just part of that, right, And so you know,

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<v Speaker 1>what happened in the crypto market didn't happen in isolation.

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<v Speaker 1>It was also happening in conjunction with what we were

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<v Speaker 1>seeing in other financial assets. So I think that you know,

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<v Speaker 1>if the pandemic didn't come along, if the central banks

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<v Speaker 1>didn't ramp up their easy money policies, you know, if

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<v Speaker 1>the governments did not um start pumping twis dollars into

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<v Speaker 1>the economy through physical stimulus, we probably wouldn't have seen

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<v Speaker 1>what we saw in the crypto market over twenty We'll

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<v Speaker 1>be right back with more from Bloomberg's Bob Burgess. Now

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<v Speaker 1>one of your charts, because we love a chart for Bloomberg.

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<v Speaker 1>One of the charts in your column pointed out the

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<v Speaker 1>fact that as interest rates started rising, crypto prices started fulling.

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<v Speaker 1>So there's kind of a clear correlation there. But what

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<v Speaker 1>for you is the causation. Was it that people were like, oh,

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<v Speaker 1>bonds suddenly seem more attractive. Is there really an investor

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<v Speaker 1>who's like, choices are between bitcoin and bonds or was

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<v Speaker 1>something else going on here? Yeah? I think it's a

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<v Speaker 1>sort of a combination of of all that. You know,

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<v Speaker 1>it's in markets, it's always impossible to you know, boil

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<v Speaker 1>it down to one sort of comment denominator. But a

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<v Speaker 1>big thing I think is just, you know, the the

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<v Speaker 1>issue of alternatives, right. I mean, you know, there was

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<v Speaker 1>this acronym um that was invented called tina t I

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<v Speaker 1>n A. There is no alternative to stocks, right, and

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<v Speaker 1>that's why we saw the big, you know, surge in

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<v Speaker 1>the stock market because people didn't want to buy bonds.

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<v Speaker 1>Is the contre paying nothing? You know, you can go

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<v Speaker 1>to your bank and you can look at your past

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<v Speaker 1>book savings account and you're getting just a couple of

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<v Speaker 1>basis points and the same thing on certificates of deposit.

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<v Speaker 1>They were paying nothing, And where else were you going

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<v Speaker 1>to put your money right, and but now that's starting

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<v Speaker 1>to turn a bent, Right, there are alternatives. You just

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<v Speaker 1>look at the lowly treasury bills, right, you can give

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<v Speaker 1>your money to the government for three months and get

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<v Speaker 1>a four percent um rate of return on that. That's

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<v Speaker 1>pretty attractive, you know, um, And you know, I think

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<v Speaker 1>that's drawing a lot of money, um, you know out

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<v Speaker 1>of the crypto market and out of the stock market

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<v Speaker 1>and some of these other places where we see it existence.

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<v Speaker 1>Given that premise, do you think, in the unlikely event

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<v Speaker 1>that interest rates are going to like fall dramatically anytime soon,

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<v Speaker 1>that where we are with crypto is like where it's

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<v Speaker 1>likely to sort of persist. You know that that's a

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<v Speaker 1>good question. I I have. I have no idea what

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<v Speaker 1>happened in the crypto market. I mean, if you look

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<v Speaker 1>at the history you know of the crypto market going

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<v Speaker 1>back to two thousand, you know, six and seven, you

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<v Speaker 1>know there's a history of tremendous booms and busts, and

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<v Speaker 1>you know you can't rule that out happening again. But

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<v Speaker 1>I think would also, you know, come down to if

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<v Speaker 1>interest rates do start to decline, why are they declining? Right?

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<v Speaker 1>I mean, are they declining because we've beaten inflation, or

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<v Speaker 1>we declining because the economy is just in such horrible

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<v Speaker 1>shape that we're in a deep procession. You know, if

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<v Speaker 1>it's the ladder is the case, then I think people

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<v Speaker 1>are going to hunker down and not going to be

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<v Speaker 1>looking at um making sort of uh, looking at speculative

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<v Speaker 1>assets to put their money. They'll look to save it. Well, Bob,

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<v Speaker 1>thank you so much for taking this time to during

0:12:53.920 --> 0:12:56.440
<v Speaker 1>the podcast today. I really appreciate it. Thank you for

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<v Speaker 1>having me. You can find more of his work on

0:12:59.720 --> 0:13:02.880
<v Speaker 1>the work terminal and on Bloomberg dot com, and if

0:13:02.920 --> 0:13:04.800
<v Speaker 1>you feel so moved, you can check out our twice

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<v Speaker 1>weekly newsletter, which is called Bloomberg Crypto. This is Bloomberg Crypto,

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<v Speaker 1>Send us your comments, questions or suggestions for the show

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<v Speaker 1>to Crypto at Bloomberg dot net. The supervising producer of

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<v Speaker 1>sad in a widing side