WEBVTT - What's a "Flippening"?

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

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<v Speaker 1>mus and this is Bloomberg Crypto at Daily Bloomberg I

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<v Speaker 1>heard podcast. It's Wednesday, August. We've talked a lot about

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<v Speaker 1>Bitcoin on this podcast, the world's oldest, largest, and still

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<v Speaker 1>most popular cryptocurrency. But today we're really going to focus

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<v Speaker 1>on the number two token, E and the blockchain it's

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<v Speaker 1>built on. Ether's market value is still about half that

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<v Speaker 1>of bitcoins, but a recent surge a whopping fifty since

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<v Speaker 1>mid June has some fans hoping it will unseat that

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<v Speaker 1>number one crypto. There's even a word for this theoretical event.

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<v Speaker 1>It's called the flippening. So could Ether overtake Bitcoin, which

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<v Speaker 1>would upend more than a decade's worth of eminence and

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<v Speaker 1>what would that mean for the future of crypto. To

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<v Speaker 1>better explain what exactly the flippening is, I'm joined by

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<v Speaker 1>Bloomberg Reports, Olga careif that's been in the works for

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<v Speaker 1>years in the years and it's been delayed so many times,

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<v Speaker 1>and Vildonna Herrick. It just has a lot of people

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<v Speaker 1>excited in terms of pitting the two against each other.

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<v Speaker 1>Olga Veldonna, what a pleasure to have you both here.

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<v Speaker 1>We are going to talk about Ether today, how exciting,

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<v Speaker 1>which seems to be. It is very exciting. It seems

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<v Speaker 1>to be the thing that everybody is talking about. But

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<v Speaker 1>we have to explain why it's exciting to us, because

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<v Speaker 1>I feel like our threshold for excitement is probably different

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<v Speaker 1>from the general population. So Olga, I'm going to start

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<v Speaker 1>with you. You know, we're still in a crypto environment

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<v Speaker 1>of mostly falling prices. We're still in a market in

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<v Speaker 1>which Bitcoin remains number one by pretty much every metric.

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<v Speaker 1>But there's been, you know, just especially in the past

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<v Speaker 1>couple of weeks, significantly more interest and activity around Ether

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<v Speaker 1>and the Ethereum blockchain. What's going on? So what's driving

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<v Speaker 1>all of this excitement is that finally the so called

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<v Speaker 1>Etherium merge is drawing near. What it is is basically

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<v Speaker 1>a software upgrade to the Ethereum blockchain which will make

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<v Speaker 1>the blockchain much more energy efficient. And it's been in

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<v Speaker 1>the works for years and years, and it's been delayed

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<v Speaker 1>so many times, and now finally finally we have a

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<v Speaker 1>date or sort of date range. We we think it's

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<v Speaker 1>going to happen in September. So investors are super excited

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<v Speaker 1>about this. There is a lot of enthusiasm around Ethereum

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<v Speaker 1>with the fact that this upgrade looks likely in the

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<v Speaker 1>middle of September, so we have a date for it.

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<v Speaker 1>It looks like things are on track, and so there's

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<v Speaker 1>really a lot of enthusiasm right now about its potential

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<v Speaker 1>to perform in the coming months. But why are they excited?

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<v Speaker 1>What exactly does this of the upgrade enable that is

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<v Speaker 1>causing you either prices to rally. So today, the way

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<v Speaker 1>transactions are ordered on the Ethereum blockchain is so called

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<v Speaker 1>miners use very power hungry computers to do the job. Essentially,

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<v Speaker 1>they solve very complex mathematical problems to order transactions. And

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<v Speaker 1>after the merge, after the software upgrade, what will have

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<v Speaker 1>is essentially a much more energy efficient way to do

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<v Speaker 1>the same task. Etherorym will become about more energy efficient

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<v Speaker 1>and the way this will be done is that the

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<v Speaker 1>transaction ordering will be done by so called validators, which

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<v Speaker 1>will be essentially entities that you use stacks of coins

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<v Speaker 1>to order transactions. Investors and basically developers and users of

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<v Speaker 1>the blockchain are excited about the potential of having a

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<v Speaker 1>more energy efficient blockchain. And bold. How has that excitement

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<v Speaker 1>manifested in prices. Prices, as we just mentioned, have been rallying,

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<v Speaker 1>and they've actually been surging. So if we look maybe

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<v Speaker 1>over the mid July to the mid August period, Ether

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<v Speaker 1>alone has surged about fift and so when I see surging,

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<v Speaker 1>I really mean surging. It's just been bonkers to be

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<v Speaker 1>watching some of these charts. But just to to give

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<v Speaker 1>a little bit more context, if I can take just

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<v Speaker 1>a small step back, this is important because Bitcoin has

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<v Speaker 1>always been seen as sort of the supreme leader of

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<v Speaker 1>the crypto space. It's the original cryptocurrency, it's been around

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<v Speaker 1>the longest, it has the best name recognition. Even if

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<v Speaker 1>you ask people on the street about crypto, they might

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<v Speaker 1>use bitcoin to mean crypto. It's just something that the

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<v Speaker 1>greatest number of people are familiar with. And so to

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<v Speaker 1>see Ether rallying, Ether is the number two token by

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<v Speaker 1>market value, to see it rallying, it just has a

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<v Speaker 1>lot of people excited in terms of pitting the two

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<v Speaker 1>against each other, and many investors looking at the prices

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<v Speaker 1>and thinking that maybe, just possibly Ether surge could help

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<v Speaker 1>overtake it in terms of market dominance versus Bitcoin. Now

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<v Speaker 1>there's a word for this potential overtaking, which is, as

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<v Speaker 1>are many things in crypto, slightly ridiculous, and it's it's flippening.

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<v Speaker 1>The flippening, that's the flippening. But I mean either's market

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<v Speaker 1>value the last time I checked was you know, two

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<v Speaker 1>hundred maybe two hundred and ten billion. Bitcoin is more

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<v Speaker 1>than twice that. Like, we would have to be talking

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<v Speaker 1>hella surge for this to happen. Why why are people

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<v Speaker 1>betting betting on a hell of surge in addition to

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<v Speaker 1>the price activity we're seeing right now. So so Bitcoin's

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<v Speaker 1>market cap in mid August was about four hundred and

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<v Speaker 1>sixty billion. Ether is about two billion. So what these

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<v Speaker 1>what the flippening potentially signifies is that we would see

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<v Speaker 1>Ether's market value be higher than bitcoins. As you said,

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<v Speaker 1>the gap is still very very large, it's huge, it

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<v Speaker 1>would have to double. I think partly it's a little

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<v Speaker 1>bit of speculation where you have investors who are looking

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<v Speaker 1>to take advantage of the price rally potentially getting in

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<v Speaker 1>thinking that others are going to be doing the same

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<v Speaker 1>and that the price can continue to skyrocket as it

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<v Speaker 1>has been. And I mean it's it's a little bit

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<v Speaker 1>funny because the notes that I get in my inbox.

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<v Speaker 1>They in a very cute, cute see way, say when

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<v Speaker 1>flippening w e n flippening meaning when is it potentially

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<v Speaker 1>going to be happening. It's just sort of crypto slang

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<v Speaker 1>for when this event might occur where you have Ether

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<v Speaker 1>surpassing Bitcoin. But the reasoning behind it is sort of,

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<v Speaker 1>you know, from from the investors I'm I'm speaking with,

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<v Speaker 1>They're excited about Ether, They're excited about the potential possibilities

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<v Speaker 1>to end the you know, saving energy when this upgrade

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<v Speaker 1>does happen. And then I think the other side also

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<v Speaker 1>being that it is a little bit of speculation where

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<v Speaker 1>people are trying to take advantage of the rally, a

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<v Speaker 1>little bit or a lot of speculation depending on the day.

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<v Speaker 1>But I want to go back to something that you said.

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<v Speaker 1>You know that one of the biggest changes here is

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<v Speaker 1>the the overall energy efficiency or you know what fans

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<v Speaker 1>are saying will be like a much improved energy efficient situation.

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<v Speaker 1>That doesn't seem like something like an end user necessarily

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<v Speaker 1>cares about. Right, It's like, Okay, great, this thing that

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<v Speaker 1>I'm invested in is no longer as harmful for the

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<v Speaker 1>environments like good but not does not necessarily have like

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<v Speaker 1>an immediate price impact. Are there other things in addition

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<v Speaker 1>to the speculation or the possibility of speculation that build

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<v Speaker 1>on and mentioned that people are betting on in the future.

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<v Speaker 1>People are betting that because Ethereum is now going to

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<v Speaker 1>be very different from bitcoin in terms of its e

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<v Speaker 1>s G profile, in terms of its environmental impact, people

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<v Speaker 1>are betting that many institutional investors who have avoided crypto

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<v Speaker 1>because of its environmental impact will actually give Ethereum a

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<v Speaker 1>second look, maybe some investors who are not interested in

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<v Speaker 1>bitcoin because it's such a big gobbler of energy. And

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<v Speaker 1>also people are excited about future upgrades to ethereum. You know,

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<v Speaker 1>this is not the last one. This is a very

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<v Speaker 1>very major upgrade, probably the most ambitious upgrade to any

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<v Speaker 1>blockchain ever. But once it's completed, there are more changes planned.

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<v Speaker 1>And you know, if this upgrade goes without a hitch

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<v Speaker 1>or with with maybe just a few hiccups, then people

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<v Speaker 1>are gonna feel very confident in the community of developed

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<v Speaker 1>is behind Ethereum and feel confident that they will implement

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<v Speaker 1>further upgrades that will increase the black chain's capacity and

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<v Speaker 1>implement a host of other features which will be super

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<v Speaker 1>attractive for application developers and could further expand the ecosystem

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<v Speaker 1>of ethereum. So I'm hearing, I'm hearing a couple of

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<v Speaker 1>things from you. The first is that this move to

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<v Speaker 1>improved energy efficiency makes it more attractive, as you've said,

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<v Speaker 1>to a certain kind of institutional investor who might have

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<v Speaker 1>commitments or requirements or constraints around you know, the the

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<v Speaker 1>e s G like the green stamp of approval on

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<v Speaker 1>a particular investments in their portfolio. And there are frankly

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<v Speaker 1>lots of those kinds of investors out there, and they

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<v Speaker 1>control heroic amount of capital. But the other thing I'm

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<v Speaker 1>hearing is, folks, see this is something that unlocks future value.

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<v Speaker 1>And I really do want to emphasize you know, both

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<v Speaker 1>of you have described this as a software of grade,

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<v Speaker 1>and it's like it's really a software upgrade, right. It's

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<v Speaker 1>like a bunch of computers that are going to get

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<v Speaker 1>new software that is going to enable different things. But

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<v Speaker 1>as we also know, software grades sometimes go terribly wrong,

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<v Speaker 1>like you install the latest operation on your machine and

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<v Speaker 1>suddenly none of your apps will open, or your phone

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<v Speaker 1>refuses to charge. You know, I think the technical glitches

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<v Speaker 1>are a real thing. What are some of the concerns

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<v Speaker 1>that people have around this. Basically, when you look at

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<v Speaker 1>the history of upgrades in Ethereum or other block chains,

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<v Speaker 1>very often you see problems shortly after the upgrade, and

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<v Speaker 1>they can last for weeks or even months. If we

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<v Speaker 1>look at one, Ethereum, for example, went through a different

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<v Speaker 1>so called fork, essentially it's split into two different block chains.

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<v Speaker 1>One was the current version, the main version that's running today.

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<v Speaker 1>The second was Ethereum Classic, which kind of stayed with

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<v Speaker 1>the previous software version. What happened shortly after the shift

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<v Speaker 1>to the new software was, for example, there were a

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<v Speaker 1>lot of replay attacks where the same coin was sort

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<v Speaker 1>of being spent twice. And there can be all kinds

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<v Speaker 1>of bugs found in software. Of course, this this this

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<v Speaker 1>new Ethereum software that's going to be implemented in September.

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<v Speaker 1>I mean, arguably it's been tested to death, but still

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<v Speaker 1>you know it's it's been tested in so called test nets,

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<v Speaker 1>which are essentially, you know, smaller versions of the big

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<v Speaker 1>change that's coming. But you know it tests is never

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<v Speaker 1>the real thing, So you cannot test every sort of

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<v Speaker 1>use case. You cannot always find out, you know, all

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<v Speaker 1>the different bugs that somebody might want to exploit when

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<v Speaker 1>when the shift happens. So I think a lot of

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<v Speaker 1>people wouldn't be surprised to see a bunch of replay

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<v Speaker 1>attacks and other hiccups when the shift does happen, and

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<v Speaker 1>the replay attack is kind of, you know, your worst nightmare.

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<v Speaker 1>If your proposition is there can be only one of anything,

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<v Speaker 1>and that's part of part of the appeal of this thing,

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<v Speaker 1>It's like, no, actually, there can be too, and that

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<v Speaker 1>that seems like a big problem for folks, for folks involved.

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<v Speaker 1>Up next, you'll hear more from Bloomberg Reports, Olga Karif

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<v Speaker 1>and Vildonna Herrick on what the flip thing might mean

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<v Speaker 1>for the future of the digital asset market. Vldonna, I

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<v Speaker 1>want to ask you just a question about a story

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<v Speaker 1>that you wrote about how crypto deervatives and specifically UM

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<v Speaker 1>are signaling that this rally and ETHA might not in

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<v Speaker 1>fact have legs. This is really interesting and it's it's

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<v Speaker 1>almost like the story that's happening around this right now,

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<v Speaker 1>especially in you know, when you're watching the markets. As

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<v Speaker 1>Alga mentioned, there's a lot of people saying that the

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<v Speaker 1>upgrade might not go as smoothly that a lot of

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<v Speaker 1>things could still go wrong. I've had more than one

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<v Speaker 1>analyst or you know, somebody, a market watcher, somebody who's

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<v Speaker 1>watching the space very closely say to me that consensus

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<v Speaker 1>almost seems to be that everything will go right, and

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<v Speaker 1>if it doesn't, then you know a lot of people

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<v Speaker 1>might not be positioned for that. So, like we said,

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<v Speaker 1>there's this huge rally, and then we have investors still

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<v Speaker 1>betting that the rally can continue. And if we look

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<v Speaker 1>at the derivatives market, we have derivatives traders buying options

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<v Speaker 1>to bet that ETHER will continue to advance into the

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<v Speaker 1>merge so into September. As Alga mentioned, we think it

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<v Speaker 1>will happen sometime in September, and we also have traders

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<v Speaker 1>positioning for a sell the news type of event once

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<v Speaker 1>the actual emerge takes place. So this is a little

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<v Speaker 1>bit complex, but maybe we can speak about it in

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<v Speaker 1>a sort of simple way. There's a lot of call

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<v Speaker 1>up and buying. So call options people are betting on

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<v Speaker 1>further upside and price going up. The price going up

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<v Speaker 1>that's right into the merge, and then they're buying downside

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<v Speaker 1>protection for after it happens and the options market is

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<v Speaker 1>showing us this. The rivatives market is showing us this.

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<v Speaker 1>They're buying downside protection for after the events. So after September,

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<v Speaker 1>people are positioning in a way that they think that

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<v Speaker 1>the price actually might go down, and they're positioning for

0:14:30.520 --> 0:14:33.000
<v Speaker 1>it right now because they're trying to take advantage of

0:14:33.040 --> 0:14:36.000
<v Speaker 1>it when it actually happens. So everything we're talking about,

0:14:36.080 --> 0:14:38.000
<v Speaker 1>we can actually see it sort of playing out in

0:14:38.040 --> 0:14:41.960
<v Speaker 1>the market and what investors, what these professional investors are

0:14:42.560 --> 0:14:45.840
<v Speaker 1>thinking might happen, and how it might play out. So

0:14:45.880 --> 0:14:48.000
<v Speaker 1>if we were to draw us on a chart, essentially though,

0:14:48.120 --> 0:14:51.840
<v Speaker 1>the options market is showing the price of Ether continuing

0:14:51.880 --> 0:14:54.320
<v Speaker 1>to rally up to about the middle of September, which

0:14:54.360 --> 0:14:57.600
<v Speaker 1>is when the mergers people are hoping that it will

0:14:57.640 --> 0:15:03.040
<v Speaker 1>finally happen, and then declar lining fairly steadily after after

0:15:03.160 --> 0:15:06.120
<v Speaker 1>that point. What are kind of the price extremes, like

0:15:06.160 --> 0:15:08.520
<v Speaker 1>what is the expected high and what is the sort

0:15:08.520 --> 0:15:11.800
<v Speaker 1>of the lowest that folks are currently betting on. So

0:15:12.600 --> 0:15:16.920
<v Speaker 1>in mid August we have Ether trading around eighteen hundred,

0:15:17.040 --> 0:15:20.240
<v Speaker 1>nine hundred, and then the options market is showing that

0:15:20.720 --> 0:15:24.120
<v Speaker 1>a lot of traders are betting it could hit hundred

0:15:24.400 --> 0:15:30.920
<v Speaker 1>but even as far as five thousand, so that would

0:15:30.920 --> 0:15:33.520
<v Speaker 1>be huge. That would be this this this Hella rally.

0:15:33.560 --> 0:15:35.480
<v Speaker 1>That would be the flippening right, that would be that

0:15:35.560 --> 0:15:39.040
<v Speaker 1>Hella Hella rally or whatever we called it earlier. So

0:15:39.360 --> 0:15:42.360
<v Speaker 1>so yeah, there's a lot of of of betting on

0:15:42.560 --> 0:15:46.160
<v Speaker 1>the price, really continuing to search. So Vildana, we have this,

0:15:46.320 --> 0:15:49.480
<v Speaker 1>you know, an options and derivatives, pretty liquid market, pretty large,

0:15:49.680 --> 0:15:51.760
<v Speaker 1>a lot of people who supposedly know what they're doing

0:15:51.760 --> 0:15:54.280
<v Speaker 1>in there. Do other types of investors look at this

0:15:54.360 --> 0:15:56.800
<v Speaker 1>to get cues on what could happen to their portfolios.

0:15:57.360 --> 0:15:59.840
<v Speaker 1>I think we can make a parallel to the stock

0:16:00.000 --> 0:16:05.560
<v Speaker 1>our kid, where you also have derivatives traders, professional investors

0:16:05.680 --> 0:16:09.800
<v Speaker 1>looking at maybe a certain event, so for example, maybe

0:16:09.840 --> 0:16:13.800
<v Speaker 1>a company announcing their earnings results, and then you have

0:16:13.880 --> 0:16:19.440
<v Speaker 1>investors betting on how the stock might move, and they

0:16:19.480 --> 0:16:22.200
<v Speaker 1>might be looking at historical precedent. Maybe Netflix is a

0:16:22.240 --> 0:16:25.600
<v Speaker 1>good example of this because it tends to swing just

0:16:25.960 --> 0:16:29.440
<v Speaker 1>hugely when it reports earnings, like we tend to see

0:16:30.080 --> 0:16:34.760
<v Speaker 1>double digit moves for for the stock on its uh

0:16:35.040 --> 0:16:38.440
<v Speaker 1>post earnings announcements. So maybe we can make a parallel

0:16:38.520 --> 0:16:40.840
<v Speaker 1>to something like that where you have a lot of

0:16:40.880 --> 0:16:45.880
<v Speaker 1>people trying to take advantage of the same event, trying

0:16:45.880 --> 0:16:49.040
<v Speaker 1>to position themselves in a way that they think they

0:16:49.080 --> 0:16:52.520
<v Speaker 1>can actually make money off of it. But I think

0:16:52.800 --> 0:16:55.280
<v Speaker 1>it's very tough because it doesn't always play out the

0:16:55.320 --> 0:16:59.000
<v Speaker 1>way even that the herd thinks it might right. Group

0:16:59.040 --> 0:17:02.040
<v Speaker 1>think is not always correct. In other words, well, Olga

0:17:02.080 --> 0:17:03.560
<v Speaker 1>of Oldonna, it is always a pleasure to have you

0:17:03.560 --> 0:17:05.280
<v Speaker 1>on the podcast. Thank you so much for joining us.

0:17:05.440 --> 0:17:09.560
<v Speaker 1>Thank you thanks for having us. You can find more

0:17:09.600 --> 0:17:12.200
<v Speaker 1>of both their reporting on the Bloomberg Terminal on Bloomberg

0:17:12.240 --> 0:17:15.360
<v Speaker 1>dot com or follow them on Twitter. Olga is at

0:17:15.440 --> 0:17:18.879
<v Speaker 1>Olga Karif that's O l G A k h A

0:17:19.160 --> 0:17:22.280
<v Speaker 1>r I F. And vil Donna is at Vildonna Herrick

0:17:22.840 --> 0:17:25.639
<v Speaker 1>That's v I L d A n A H A

0:17:25.840 --> 0:17:35.399
<v Speaker 1>j r I C. On the next episode of Bloomberg Crypto.

0:17:36.000 --> 0:17:40.360
<v Speaker 1>This Crypto winter has resulted in significant individual losses, as

0:17:40.400 --> 0:17:43.840
<v Speaker 1>well as a handful of company bankruptcy filings and more

0:17:43.880 --> 0:17:47.640
<v Speaker 1>than one CEO looking for a new job. Join us

0:17:47.640 --> 0:17:49.800
<v Speaker 1>for a discussion about one of the more prominent figures

0:17:49.840 --> 0:17:56.680
<v Speaker 1>in bitcoin, Michael Sailor, the now former CEO of micro Strategy.

0:17:58.280 --> 0:18:01.439
<v Speaker 1>This is Bloomberg Crypto at Early podcast from Bloomberg and

0:18:01.480 --> 0:18:04.440
<v Speaker 1>I Heart Radio. For more shows from I Heart Radio,

0:18:04.680 --> 0:18:07.760
<v Speaker 1>visit the I Heart Radio app, Apple Podcasts, or wherever

0:18:07.840 --> 0:18:11.359
<v Speaker 1>you get your podcasts. Send us your comments, questions, or

0:18:11.400 --> 0:18:14.400
<v Speaker 1>suggestions for the show to Crypto at Bloomberg dot net

0:18:14.960 --> 0:18:19.719
<v Speaker 1>or find us on Twitter. We're at Crypto. The supervising

0:18:19.760 --> 0:18:23.560
<v Speaker 1>producer of Bloomberg Crypto is Vicky Verglina. Our senior producer

0:18:23.640 --> 0:18:27.840
<v Speaker 1>is Janet Babin. Our producer is Sharon Burriro, associate producer

0:18:27.960 --> 0:18:31.480
<v Speaker 1>is Ty Butler. Desta wonder At is our engineer. Original

0:18:31.560 --> 0:18:35.560
<v Speaker 1>music by Leo Sidran. I'm Stacy Marie Schmal. We'll be

0:18:35.600 --> 0:18:36.200
<v Speaker 1>back tomorrow