WEBVTT - How the 'Alameda Gap' Is Impacting Crypto Markets

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

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<v Speaker 1>and I'm Vodana hi in today for Stacy Marie Ishmael.

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<v Speaker 1>It's Tuesday, December. For the last six months or so,

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<v Speaker 1>the digital assets industry has been knee deep in the

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<v Speaker 1>trenches of a crypto winter, and now the demise of

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<v Speaker 1>Sam brankun Fried's f t X and Alameter Research have

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<v Speaker 1>produced a dramatic decline in market liquidity. And while these

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<v Speaker 1>bankruptcies will take years to be resolved in the court system,

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<v Speaker 1>the effects of the collapse in the market have been immediate.

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<v Speaker 1>Investors and traders are only just beginning to grapple with

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<v Speaker 1>the consequences. And joining us now to talk about this

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<v Speaker 1>and more is Bloomberg reporter Katie Greifeld. The fact that

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<v Speaker 1>liquidity is drying up and we're still range bound, I

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<v Speaker 1>would think would make people a little bit nervous. M okay, Katie,

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<v Speaker 1>just to start, maybe you can lay out for us

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<v Speaker 1>what actually is happening in crypto markets right now now

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<v Speaker 1>that we've seen f t X and Alameda fold. It

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<v Speaker 1>depends on what part of the crypto industry you're looking at.

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<v Speaker 1>I mean, if you're looking at the company corporate side

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<v Speaker 1>of things. Obviously everyone is on bankruptcy watch, just looking

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<v Speaker 1>for the continued fallout there from the fall of SPFS empire.

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<v Speaker 1>If you're looking at the trading side, doesn't seem like

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<v Speaker 1>too much is happening. And if you're looking at the

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<v Speaker 1>price of the coins themselves, I mean, bitcoin is just

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<v Speaker 1>absolutely glued to its range. So again, it feels like

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<v Speaker 1>a lot is happening in terms of the companies the

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<v Speaker 1>people involved, but in the actual market itself it's a

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<v Speaker 1>little bit dull. I heard you were doing a lot

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<v Speaker 1>of yellow trading. I'm not white. I think that obscure

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<v Speaker 1>coins those they have a name, you know, we can't

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<v Speaker 1>say it on the right. Yeah, the the s coins, Uh,

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<v Speaker 1>someone's doing it, but far less than years previous. Yeah.

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<v Speaker 1>So what about in terms of market liquidity, Maybe let's

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<v Speaker 1>start out with a definition of what actually liquidity is,

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<v Speaker 1>because people are always talking about how the bond market

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<v Speaker 1>it doesn't have liquidity, liquidity is running dry here and there.

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<v Speaker 1>So what specifically are we talking about when we're talking

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<v Speaker 1>about the crypto market. I think that's an important point

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<v Speaker 1>that liquidity is sort of this nebulous phrase that's thrown

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<v Speaker 1>about in every single asset class. You have heard a

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<v Speaker 1>lot about treasury market liquidity this year. Some people joke

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<v Speaker 1>that people blame liquidity issues when they just can't get

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<v Speaker 1>the price they want. But there was a report out

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<v Speaker 1>from Kaiko which I thought was really interesting. They laid

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<v Speaker 1>out their methodology for how they measure liquidity in crypto

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<v Speaker 1>and I liked this. They basically calculate the quantity of

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<v Speaker 1>bids and asks within two percent of the mid price

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<v Speaker 1>for a token trading on an exchange. So they looked

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<v Speaker 1>at that for Bitcoin, for tether across centralized exchanges and

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<v Speaker 1>they found that actually liquidity there dropped to its lowest

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<v Speaker 1>level since June in November. So yeah, yeah, a bit

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<v Speaker 1>of a drying up there, and it's all as a

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<v Speaker 1>result of what happened with f t X and Alameda. Right,

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<v Speaker 1>so liquidity is drying up in crypto markets, meaning that

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<v Speaker 1>people are just having a harder time buying and setting

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<v Speaker 1>things right exactly. They actually called it the Alimated gap.

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<v Speaker 1>Great name, It is a great name, and it really

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<v Speaker 1>speaks to what's going on, is that you have this

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<v Speaker 1>big reduction in risk appetite following that huge implosion. We

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<v Speaker 1>saw that basically, the market makers, trading shops in general,

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<v Speaker 1>they're pulling back their bids and their asks because they

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<v Speaker 1>want to regulate risk. Here, there's a big rethink on

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<v Speaker 1>what people's risk physicians look like, and you're seeing that

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<v Speaker 1>filter out in some of these liquidity measures. So when

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<v Speaker 1>we are talking to some of these market makers, can

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<v Speaker 1>we maybe say that there are some positive developments as

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<v Speaker 1>a result where I think they're telling us that they're

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<v Speaker 1>just being much more prudent in terms of who and

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<v Speaker 1>what they're actually trading with. So I think, I mean,

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<v Speaker 1>it'd be easy to maybe look at the explanation that

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<v Speaker 1>Kaiko lays out that basically these trading shops are regulating

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<v Speaker 1>their risk more prudently and say that's a good thing.

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<v Speaker 1>I guess the bad thing or the potential risk here

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<v Speaker 1>is that why is low liquidity bad? It's because, well,

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<v Speaker 1>you can't necessarily trade at the price that you would

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<v Speaker 1>like to, and because of that, you could see even

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<v Speaker 1>bigger swings in the market if there were a big

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<v Speaker 1>order to go through that has much more potential to

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<v Speaker 1>cause a bigger swing than would be expected in a

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<v Speaker 1>normal liquidity environment. Obviously, it doesn't seem like we have

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<v Speaker 1>seen that yet when you just look at the price

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<v Speaker 1>of bitcoin glued in that sixteen thousand to seventeen thousand

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<v Speaker 1>dollar range. But the fact that liquidity is drying up

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<v Speaker 1>and we're still range bound, I would think would make

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<v Speaker 1>people a little bit nervous. Let's talk about that range.

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<v Speaker 1>So over this summer and for much of this year,

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<v Speaker 1>bitquin was around twenty thousand dollars. Now it's much closer

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<v Speaker 1>to seventeen thousand dollars, And I wonder if you think

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<v Speaker 1>seventeen thousand is the new twenty thousand. It's a good question.

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<v Speaker 1>I mean, it is interesting just in the past a

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<v Speaker 1>few weeks that seventeen thousand has become the new sixteen thousand.

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<v Speaker 1>For example, for so long we were glued to sixteen thousand.

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<v Speaker 1>This market does seem to like roundish numbers for better worse,

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<v Speaker 1>we tend to like gravitate towards these sixteen or seventeen

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<v Speaker 1>or twenty handles. In terms of why that's the floor,

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<v Speaker 1>I wish I knew, but we know that if you

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<v Speaker 1>look at some of the exchange traded product data, for example,

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<v Speaker 1>that there really hasn't been any selling. It feels like

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<v Speaker 1>the marginal seller has just been flushed out of this market.

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<v Speaker 1>Left is probably true believers and some of those so

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<v Speaker 1>called whales, and they'll be sticking around. One would assume.

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<v Speaker 1>So if you bought it a hundred dollars, you're probably okay,

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<v Speaker 1>you're happy, still maybe not happy. Up next more with

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<v Speaker 1>Bloomberg reporter Katie Greifeld. We'll be right back. So we

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<v Speaker 1>have Bitcoin hovering around seventeen thousand dollars. One interesting thing

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<v Speaker 1>that's happened recently is that it's dominance actually within the

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<v Speaker 1>market as a as its share of the market hasn't

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<v Speaker 1>been going up, which is unusual because in the past

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<v Speaker 1>when we've had sell offs, its dominance has tended to

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<v Speaker 1>go up because more people are gravitating towards the coin,

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<v Speaker 1>you know, as quote unquote safer a place within crypto

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<v Speaker 1>itself because it's the original, it's the largest, etcetera. Can

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<v Speaker 1>you talk about this and why this is a bad sign. Yeah,

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<v Speaker 1>this is one of the interesting quirks in this range

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<v Speaker 1>that we've been watching in bitcoin. To your point, bitcoin

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<v Speaker 1>is like the haven of the cryptocurrencies. It's been around

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<v Speaker 1>the longest, most liquid, largest market cap. The list goes on,

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<v Speaker 1>But like you said, I mean it's share of the

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<v Speaker 1>total cryptocurrency market, which total market values somewhere under a

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<v Speaker 1>trillion dollars right now, but Bitcoin's shares about forty percent.

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<v Speaker 1>That number was about eighty percent. Obviously is more coins

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<v Speaker 1>have proliferated in the market that has naturally gone down,

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<v Speaker 1>but typically in times of turmoil, you do see its

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<v Speaker 1>share of the market go up as investors basically flocked

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<v Speaker 1>to this to ride out the storm. The fact that

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<v Speaker 1>that hasn't happened there was actually a great article from

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<v Speaker 1>you and quoting no l At Jason, who's a market watcher,

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<v Speaker 1>she points out that maybe that's a bad thing that

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<v Speaker 1>people aren't rotating to bitcoin. Maybe they're just leaving the

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<v Speaker 1>market altogether. Maybe some of those retail players individual investors

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<v Speaker 1>who have come in over the last few years, instead

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<v Speaker 1>of rotating to bitcoin during this period of tumult, they're

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<v Speaker 1>just rotating out altogether. So the fact that you aren't

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<v Speaker 1>seeing Bitcoin sort of gain a larger share here maybe

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<v Speaker 1>not the best sign. One place that maybe is seeing

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<v Speaker 1>a boost though, are defied exchanges. What can you tell

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<v Speaker 1>us about that? I think this is going to be

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<v Speaker 1>such an interesting trend to watch as maybe some of

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<v Speaker 1>the shell's shock nous of this moment in time fades

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<v Speaker 1>where people actually begin investing again or where they gravitate

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<v Speaker 1>to when they're investing in trading cryptocurrencies. Because obviously f

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<v Speaker 1>t X had been very popular, Binance is still really popular.

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<v Speaker 1>Coin Base has just seen its stock price absolutely plummet

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<v Speaker 1>during all of this. I think it's down over eighty

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<v Speaker 1>percent year to date in the secondary market, and in

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<v Speaker 1>my conversations that I've had with people just casually, sometimes

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<v Speaker 1>the question comes up, why is coin based doing so poorly?

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<v Speaker 1>Isn't it great that one of their biggest competitors has

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<v Speaker 1>just been wiped out? And the answer that I get

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<v Speaker 1>is a sort of what Noel Atchinson was talking about.

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<v Speaker 1>Maybe people are leaving altogether. B There has been this

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<v Speaker 1>movement back into sort of decentralized exchanges. People have this

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<v Speaker 1>real desire to own their keys at this moment. They

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<v Speaker 1>want to be in cold wallets. They don't necessarily trust

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<v Speaker 1>these centralized exchanges. So whether that continues going forward, or

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<v Speaker 1>whether the Binances of the world taking even greater share

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<v Speaker 1>of trading remains to be seen. You've read my mind

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<v Speaker 1>as usual, because I was going to ask you about Binance,

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<v Speaker 1>because they did come out and say that they're seeing

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<v Speaker 1>a boost trading activity. So they're another player that's obviously

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<v Speaker 1>benefiting a bit from the fallout from one of their competitors, exactly,

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<v Speaker 1>and coin bases trying to capture that same momentum. But

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<v Speaker 1>it doesn't seem to have sort of the built in

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<v Speaker 1>cold following of sort of the crypto native set that

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<v Speaker 1>finance does. When I think of coin basis, yeah, when

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<v Speaker 1>I think of coin basis users, I think more of

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<v Speaker 1>you know, individual investors, retail investors specifically in the United

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<v Speaker 1>States who maybe lost a lot of money in the

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<v Speaker 1>past year and are afraid of coming back in Exactly, Well,

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<v Speaker 1>don it though, I'm curious. I mean, you spend all

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<v Speaker 1>day talking to crypto people. I sit right behind you,

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<v Speaker 1>so I hear you you're the best death mate, or

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<v Speaker 1>I just you dropped a lot. But I mean, in

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<v Speaker 1>your conversations, have you noticed a shift in how people

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<v Speaker 1>are managing risk? I do think people are just being

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<v Speaker 1>much more cautious and much more prudence. So even in

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<v Speaker 1>the Alameda gap story, we quote a couple of market

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<v Speaker 1>makers who said they're just being much more cognizant who

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<v Speaker 1>they're actually trading with who their counterparties are, who's on

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<v Speaker 1>the other end of of trades. And I think just

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<v Speaker 1>with the market the state that it's in right now,

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<v Speaker 1>everybody is still waiting for things to play out. As

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<v Speaker 1>you said, we're on bankruptcy watch for a number of companies.

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<v Speaker 1>Nobody knows what's gonna be happening with prices. I mean,

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<v Speaker 1>there's just so much uncertainty, much more than really usually,

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<v Speaker 1>and there's a lot of uncertainty in crypto, but just

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<v Speaker 1>the recent period has been much much sort of like

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<v Speaker 1>a heightened sense of uncertainty. So I think people are

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<v Speaker 1>definitely being much more cautious, much more prudent. Well, this

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<v Speaker 1>was the best conversation I've had all week. This was sublime.

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<v Speaker 1>I love having the meta conversations about this different ways

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<v Speaker 1>to be thinking about things. But thank you so much

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<v Speaker 1>for joining us, Thanks for having me. I can't wait

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<v Speaker 1>for you to come back soon. That was Bloomberg reporter

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<v Speaker 1>Katie Greifeld. You can find more of her reporting on

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<v Speaker 1>the Bloomberg terminal and on Bloomberg dot com. For more,

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<v Speaker 1>be sure to check out our twice weekly newsletter, Bloomberg Crypto.

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<v Speaker 1>on Them. Desta wonder At is our engineer. Original music

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<v Speaker 1>by Leo Sidron. I'm Stacy Marie Schmall. We'll be back tomorrow.

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<v Speaker 1>A pist