Speaker 1: I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg
Speaker 1: mus and this is Bloomberg Crypto at Daily Bloomberg I
Speaker 1: heard podcast. It's Wednesday, August. We've talked a lot about
Speaker 1: Bitcoin on this podcast, the world's oldest, largest, and still
Speaker 1: most popular cryptocurrency. But today we're really going to focus
Speaker 1: on the number two token, E and the blockchain it's
Speaker 1: built on. Ether's market value is still about half that
Speaker 1: of bitcoins, but a recent surge a whopping fifty since
Speaker 1: mid June has some fans hoping it will unseat that
Speaker 1: number one crypto. There's even a word for this theoretical event.
Speaker 1: It's called the flippening. So could Ether overtake Bitcoin, which
Speaker 1: would upend more than a decade's worth of eminence and
Speaker 1: what would that mean for the future of crypto. To
Speaker 1: better explain what exactly the flippening is, I'm joined by
Speaker 1: Bloomberg Reports, Olga careif that's been in the works for
Speaker 1: years in the years and it's been delayed so many times,
Speaker 1: and Vildonna Herrick. It just has a lot of people
Speaker 1: excited in terms of pitting the two against each other.
Speaker 1: Olga Veldonna, what a pleasure to have you both here.
Speaker 1: We are going to talk about Ether today, how exciting,
Speaker 1: which seems to be. It is very exciting. It seems
Speaker 1: to be the thing that everybody is talking about. But
Speaker 1: we have to explain why it's exciting to us, because
Speaker 1: I feel like our threshold for excitement is probably different
Speaker 1: from the general population. So Olga, I'm going to start
Speaker 1: with you. You know, we're still in a crypto environment
Speaker 1: of mostly falling prices. We're still in a market in
Speaker 1: which Bitcoin remains number one by pretty much every metric.
Speaker 1: But there's been, you know, just especially in the past
Speaker 1: couple of weeks, significantly more interest and activity around Ether
Speaker 1: and the Ethereum blockchain. What's going on? So what's driving
Speaker 1: all of this excitement is that finally the so called
Speaker 1: Etherium merge is drawing near. What it is is basically
Speaker 1: a software upgrade to the Ethereum blockchain which will make
Speaker 1: the blockchain much more energy efficient. And it's been in
Speaker 1: the works for years and years, and it's been delayed
Speaker 1: so many times, and now finally finally we have a
Speaker 1: date or sort of date range. We we think it's
Speaker 1: going to happen in September. So investors are super excited
Speaker 1: about this. There is a lot of enthusiasm around Ethereum
Speaker 1: with the fact that this upgrade looks likely in the
Speaker 1: middle of September, so we have a date for it.
Speaker 1: It looks like things are on track, and so there's
Speaker 1: really a lot of enthusiasm right now about its potential
Speaker 1: to perform in the coming months. But why are they excited?
Speaker 1: What exactly does this of the upgrade enable that is
Speaker 1: causing you either prices to rally. So today, the way
Speaker 1: transactions are ordered on the Ethereum blockchain is so called
Speaker 1: miners use very power hungry computers to do the job. Essentially,
Speaker 1: they solve very complex mathematical problems to order transactions. And
Speaker 1: after the merge, after the software upgrade, what will have
Speaker 1: is essentially a much more energy efficient way to do
Speaker 1: the same task. Etherorym will become about more energy efficient
Speaker 1: and the way this will be done is that the
Speaker 1: transaction ordering will be done by so called validators, which
Speaker 1: will be essentially entities that you use stacks of coins
Speaker 1: to order transactions. Investors and basically developers and users of
Speaker 1: the blockchain are excited about the potential of having a
Speaker 1: more energy efficient blockchain. And bold. How has that excitement
Speaker 1: manifested in prices. Prices, as we just mentioned, have been rallying,
Speaker 1: and they've actually been surging. So if we look maybe
Speaker 1: over the mid July to the mid August period, Ether
Speaker 1: alone has surged about fift and so when I see surging,
Speaker 1: I really mean surging. It's just been bonkers to be
Speaker 1: watching some of these charts. But just to to give
Speaker 1: a little bit more context, if I can take just
Speaker 1: a small step back, this is important because Bitcoin has
Speaker 1: always been seen as sort of the supreme leader of
Speaker 1: the crypto space. It's the original cryptocurrency, it's been around
Speaker 1: the longest, it has the best name recognition. Even if
Speaker 1: you ask people on the street about crypto, they might
Speaker 1: use bitcoin to mean crypto. It's just something that the
Speaker 1: greatest number of people are familiar with. And so to
Speaker 1: see Ether rallying, Ether is the number two token by
Speaker 1: market value, to see it rallying, it just has a
Speaker 1: lot of people excited in terms of pitting the two
Speaker 1: against each other, and many investors looking at the prices
Speaker 1: and thinking that maybe, just possibly Ether surge could help
Speaker 1: overtake it in terms of market dominance versus Bitcoin. Now
Speaker 1: there's a word for this potential overtaking, which is, as
Speaker 1: are many things in crypto, slightly ridiculous, and it's it's flippening.
Speaker 1: The flippening, that's the flippening. But I mean either's market
Speaker 1: value the last time I checked was you know, two
Speaker 1: hundred maybe two hundred and ten billion. Bitcoin is more
Speaker 1: than twice that. Like, we would have to be talking
Speaker 1: hella surge for this to happen. Why why are people
Speaker 1: betting betting on a hell of surge in addition to
Speaker 1: the price activity we're seeing right now. So so Bitcoin's
Speaker 1: market cap in mid August was about four hundred and
Speaker 1: sixty billion. Ether is about two billion. So what these
Speaker 1: what the flippening potentially signifies is that we would see
Speaker 1: Ether's market value be higher than bitcoins. As you said,
Speaker 1: the gap is still very very large, it's huge, it
Speaker 1: would have to double. I think partly it's a little
Speaker 1: bit of speculation where you have investors who are looking
Speaker 1: to take advantage of the price rally potentially getting in
Speaker 1: thinking that others are going to be doing the same
Speaker 1: and that the price can continue to skyrocket as it
Speaker 1: has been. And I mean it's it's a little bit
Speaker 1: funny because the notes that I get in my inbox.
Speaker 1: They in a very cute, cute see way, say when
Speaker 1: flippening w e n flippening meaning when is it potentially
Speaker 1: going to be happening. It's just sort of crypto slang
Speaker 1: for when this event might occur where you have Ether
Speaker 1: surpassing Bitcoin. But the reasoning behind it is sort of,
Speaker 1: you know, from from the investors I'm I'm speaking with,
Speaker 1: They're excited about Ether, They're excited about the potential possibilities
Speaker 1: to end the you know, saving energy when this upgrade
Speaker 1: does happen. And then I think the other side also
Speaker 1: being that it is a little bit of speculation where
Speaker 1: people are trying to take advantage of the rally, a
Speaker 1: little bit or a lot of speculation depending on the day.
Speaker 1: But I want to go back to something that you said.
Speaker 1: You know that one of the biggest changes here is
Speaker 1: the the overall energy efficiency or you know what fans
Speaker 1: are saying will be like a much improved energy efficient situation.
Speaker 1: That doesn't seem like something like an end user necessarily
Speaker 1: cares about. Right, It's like, Okay, great, this thing that
Speaker 1: I'm invested in is no longer as harmful for the
Speaker 1: environments like good but not does not necessarily have like
Speaker 1: an immediate price impact. Are there other things in addition
Speaker 1: to the speculation or the possibility of speculation that build
Speaker 1: on and mentioned that people are betting on in the future.
Speaker 1: People are betting that because Ethereum is now going to
Speaker 1: be very different from bitcoin in terms of its e
Speaker 1: s G profile, in terms of its environmental impact, people
Speaker 1: are betting that many institutional investors who have avoided crypto
Speaker 1: because of its environmental impact will actually give Ethereum a
Speaker 1: second look, maybe some investors who are not interested in
Speaker 1: bitcoin because it's such a big gobbler of energy. And
Speaker 1: also people are excited about future upgrades to ethereum. You know,
Speaker 1: this is not the last one. This is a very
Speaker 1: very major upgrade, probably the most ambitious upgrade to any
Speaker 1: blockchain ever. But once it's completed, there are more changes planned.
Speaker 1: And you know, if this upgrade goes without a hitch
Speaker 1: or with with maybe just a few hiccups, then people
Speaker 1: are gonna feel very confident in the community of developed
Speaker 1: is behind Ethereum and feel confident that they will implement
Speaker 1: further upgrades that will increase the black chain's capacity and
Speaker 1: implement a host of other features which will be super
Speaker 1: attractive for application developers and could further expand the ecosystem
Speaker 1: of ethereum. So I'm hearing, I'm hearing a couple of
Speaker 1: things from you. The first is that this move to
Speaker 1: improved energy efficiency makes it more attractive, as you've said,
Speaker 1: to a certain kind of institutional investor who might have
Speaker 1: commitments or requirements or constraints around you know, the the
Speaker 1: e s G like the green stamp of approval on
Speaker 1: a particular investments in their portfolio. And there are frankly
Speaker 1: lots of those kinds of investors out there, and they
Speaker 1: control heroic amount of capital. But the other thing I'm
Speaker 1: hearing is, folks, see this is something that unlocks future value.
Speaker 1: And I really do want to emphasize you know, both
Speaker 1: of you have described this as a software of grade,
Speaker 1: and it's like it's really a software upgrade, right. It's
Speaker 1: like a bunch of computers that are going to get
Speaker 1: new software that is going to enable different things. But
Speaker 1: as we also know, software grades sometimes go terribly wrong,
Speaker 1: like you install the latest operation on your machine and
Speaker 1: suddenly none of your apps will open, or your phone
Speaker 1: refuses to charge. You know, I think the technical glitches
Speaker 1: are a real thing. What are some of the concerns
Speaker 1: that people have around this. Basically, when you look at
Speaker 1: the history of upgrades in Ethereum or other block chains,
Speaker 1: very often you see problems shortly after the upgrade, and
Speaker 1: they can last for weeks or even months. If we
Speaker 1: look at one, Ethereum, for example, went through a different
Speaker 1: so called fork, essentially it's split into two different block chains.
Speaker 1: One was the current version, the main version that's running today.
Speaker 1: The second was Ethereum Classic, which kind of stayed with
Speaker 1: the previous software version. What happened shortly after the shift
Speaker 1: to the new software was, for example, there were a
Speaker 1: lot of replay attacks where the same coin was sort
Speaker 1: of being spent twice. And there can be all kinds
Speaker 1: of bugs found in software. Of course, this this this
Speaker 1: new Ethereum software that's going to be implemented in September.
Speaker 1: I mean, arguably it's been tested to death, but still
Speaker 1: you know it's it's been tested in so called test nets,
Speaker 1: which are essentially, you know, smaller versions of the big
Speaker 1: change that's coming. But you know it tests is never
Speaker 1: the real thing, So you cannot test every sort of
Speaker 1: use case. You cannot always find out, you know, all
Speaker 1: the different bugs that somebody might want to exploit when
Speaker 1: when the shift happens. So I think a lot of
Speaker 1: people wouldn't be surprised to see a bunch of replay
Speaker 1: attacks and other hiccups when the shift does happen, and
Speaker 1: the replay attack is kind of, you know, your worst nightmare.
Speaker 1: If your proposition is there can be only one of anything,
Speaker 1: and that's part of part of the appeal of this thing,
Speaker 1: It's like, no, actually, there can be too, and that
Speaker 1: that seems like a big problem for folks, for folks involved.
Speaker 1: Up next, you'll hear more from Bloomberg Reports, Olga Karif
Speaker 1: and Vildonna Herrick on what the flip thing might mean
Speaker 1: for the future of the digital asset market. Vldonna, I
Speaker 1: want to ask you just a question about a story
Speaker 1: that you wrote about how crypto deervatives and specifically UM
Speaker 1: are signaling that this rally and ETHA might not in
Speaker 1: fact have legs. This is really interesting and it's it's
Speaker 1: almost like the story that's happening around this right now,
Speaker 1: especially in you know, when you're watching the markets. As
Speaker 1: Alga mentioned, there's a lot of people saying that the
Speaker 1: upgrade might not go as smoothly that a lot of
Speaker 1: things could still go wrong. I've had more than one
Speaker 1: analyst or you know, somebody, a market watcher, somebody who's
Speaker 1: watching the space very closely say to me that consensus
Speaker 1: almost seems to be that everything will go right, and
Speaker 1: if it doesn't, then you know a lot of people
Speaker 1: might not be positioned for that. So, like we said,
Speaker 1: there's this huge rally, and then we have investors still
Speaker 1: betting that the rally can continue. And if we look
Speaker 1: at the derivatives market, we have derivatives traders buying options
Speaker 1: to bet that ETHER will continue to advance into the
Speaker 1: merge so into September. As Alga mentioned, we think it
Speaker 1: will happen sometime in September, and we also have traders
Speaker 1: positioning for a sell the news type of event once
Speaker 1: the actual emerge takes place. So this is a little
Speaker 1: bit complex, but maybe we can speak about it in
Speaker 1: a sort of simple way. There's a lot of call
Speaker 1: up and buying. So call options people are betting on
Speaker 1: further upside and price going up. The price going up
Speaker 1: that's right into the merge, and then they're buying downside
Speaker 1: protection for after it happens and the options market is
Speaker 1: showing us this. The rivatives market is showing us this.
Speaker 1: They're buying downside protection for after the events. So after September,
Speaker 1: people are positioning in a way that they think that
Speaker 1: the price actually might go down, and they're positioning for
Speaker 1: it right now because they're trying to take advantage of
Speaker 1: it when it actually happens. So everything we're talking about,
Speaker 1: we can actually see it sort of playing out in
Speaker 1: the market and what investors, what these professional investors are
Speaker 1: thinking might happen, and how it might play out. So
Speaker 1: if we were to draw us on a chart, essentially though,
Speaker 1: the options market is showing the price of Ether continuing
Speaker 1: to rally up to about the middle of September, which
Speaker 1: is when the mergers people are hoping that it will
Speaker 1: finally happen, and then declar lining fairly steadily after after
Speaker 1: that point. What are kind of the price extremes, like
Speaker 1: what is the expected high and what is the sort
Speaker 1: of the lowest that folks are currently betting on. So
Speaker 1: in mid August we have Ether trading around eighteen hundred,
Speaker 1: nine hundred, and then the options market is showing that
Speaker 1: a lot of traders are betting it could hit hundred
Speaker 1: but even as far as five thousand, so that would
Speaker 1: be huge. That would be this this this Hella rally.
Speaker 1: That would be the flippening right, that would be that
Speaker 1: Hella Hella rally or whatever we called it earlier. So
Speaker 1: so yeah, there's a lot of of of betting on
Speaker 1: the price, really continuing to search. So Vildana, we have this,
Speaker 1: you know, an options and derivatives, pretty liquid market, pretty large,
Speaker 1: a lot of people who supposedly know what they're doing
Speaker 1: in there. Do other types of investors look at this
Speaker 1: to get cues on what could happen to their portfolios.
Speaker 1: I think we can make a parallel to the stock
Speaker 1: our kid, where you also have derivatives traders, professional investors
Speaker 1: looking at maybe a certain event, so for example, maybe
Speaker 1: a company announcing their earnings results, and then you have
Speaker 1: investors betting on how the stock might move, and they
Speaker 1: might be looking at historical precedent. Maybe Netflix is a
Speaker 1: good example of this because it tends to swing just
Speaker 1: hugely when it reports earnings, like we tend to see
Speaker 1: double digit moves for for the stock on its uh
Speaker 1: post earnings announcements. So maybe we can make a parallel
Speaker 1: to something like that where you have a lot of
Speaker 1: people trying to take advantage of the same event, trying
Speaker 1: to position themselves in a way that they think they
Speaker 1: can actually make money off of it. But I think
Speaker 1: it's very tough because it doesn't always play out the
Speaker 1: way even that the herd thinks it might right. Group
Speaker 1: think is not always correct. In other words, well, Olga
Speaker 1: of Oldonna, it is always a pleasure to have you
Speaker 1: on the podcast. Thank you so much for joining us.
Speaker 1: Thank you thanks for having us. You can find more
Speaker 1: of both their reporting on the Bloomberg Terminal on Bloomberg
Speaker 1: dot com or follow them on Twitter. Olga is at
Speaker 1: Olga Karif that's O l G A k h A
Speaker 1: r I F. And vil Donna is at Vildonna Herrick
Speaker 1: That's v I L d A n A H A
Speaker 1: j r I C. On the next episode of Bloomberg Crypto.
Speaker 1: This Crypto winter has resulted in significant individual losses, as
Speaker 1: well as a handful of company bankruptcy filings and more
Speaker 1: than one CEO looking for a new job. Join us
Speaker 1: for a discussion about one of the more prominent figures
Speaker 1: in bitcoin, Michael Sailor, the now former CEO of micro Strategy.
Speaker 1: This is Bloomberg Crypto at Early podcast from Bloomberg and
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Speaker 1: or find us on Twitter. We're at Crypto. The supervising
Speaker 1: producer of Bloomberg Crypto is Vicky Verglina. Our senior producer
Speaker 1: is Janet Babin. Our producer is Sharon Burriro, associate producer
Speaker 1: is Ty Butler. Desta wonder At is our engineer. Original
Speaker 1: music by Leo Sidran. I'm Stacy Marie Schmal. We'll be
Speaker 1: back tomorrow