Speaker 1: This is Bloomberg Crypto, a daily Bloomberg Ihad podcast, and
Speaker 1: I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News.
Speaker 1: It's Friday, January. One of the main questions we're asking
Speaker 1: this week, and frankly one of the questions we ask
Speaker 1: every week in our reporting, is what's the latest with Binance,
Speaker 1: the world's largest crypto exchange by volume and by pretty
Speaker 1: much any other metric you can decide. As we reported
Speaker 1: this week in a story written by my colleague Emilye,
Speaker 1: Nicole Finance acknowledge that it had been mistakenly mixing the
Speaker 1: collateral it holds for some of its tokens in the
Speaker 1: same digital wallets as other types of funds. Now, this
Speaker 1: might sound technical and confusing, but we're going to talk
Speaker 1: about why it's important and why this kind of operational
Speaker 1: issue is a challenge for these exchanges at a point
Speaker 1: when both regulators and customers are paying really close attention
Speaker 1: to how this industry is managing its transparency. We'll also
Speaker 1: talk about the layoffs that continue to happen in crypto
Speaker 1: and how that relates to what's happening elsewhere in tech
Speaker 1: and in finance and finally, we'll talk a little bit
Speaker 1: about the latest in regulation. I'm delighted to be in
Speaker 1: London this week, joined by my colleagues and Arera Bloomberg,
Speaker 1: Senior Editor. I am hearing actually from head Hunters that
Speaker 1: it's not as bad as other years, because there are
Speaker 1: still some firms that are still hiring, maybe the ones
Speaker 1: that came in and were a bit more level headed.
Speaker 1: And by reporter to Justina Lee, it's just looking at
Speaker 1: the correlation between the SMP five hundred and bitcoin and
Speaker 1: it's still very much positive. Anna, Justina, pleasure to have
Speaker 1: you joined me in the London studio. Yeah, thanks for
Speaker 1: coming and having us. It's always a pleasure. Thank you
Speaker 1: for having us. Now. I have this theory that every
Speaker 1: time I travel, something bad happens in crypto, and that's
Speaker 1: held up remarkably well. And you know, so, while I
Speaker 1: was in transit over the past like week and a half,
Speaker 1: we had Genesis file for bankruptcy Genesis filing in the
Speaker 1: Southern District of New York. This only includes the lending
Speaker 1: side of that business. The spot trading and derivative side
Speaker 1: was not included in this chapter eleven. We had a
Speaker 1: ton of reporting from our colleague Emily Nicole on various
Speaker 1: confusing situations that relate to Binances, kind of management of
Speaker 1: certain wallets and the tokens in those wallets. Let's have
Speaker 1: look at Finances. It acknowledges that it mistakenly kept some
Speaker 1: users unstored with its own reserves. It's when questioned buyers
Speaker 1: at Bloomberg News, Binance issue the statement admitting collateral sets
Speaker 1: were moved into the wallet in error. I know you
Speaker 1: edited some of the Genesis stories, but also some of
Speaker 1: the Binance stories. I'm going to ask you to just say,
Speaker 1: in the least technical way possible, what's been going on.
Speaker 1: So with Finance, I'll give you the latest update that
Speaker 1: we had. Basically, Binance issues some tokens which are versions
Speaker 1: of existing tokens. Because what happens with blockchain is that
Speaker 1: if you issue a token on a different type of chain,
Speaker 1: then that can run or work on another chip. Somebody
Speaker 1: is used a token and it runs on ethereum, they
Speaker 1: can't easily just like also have that work on say
Speaker 1: the Solana blockchain exactly. And that's a big problem if
Speaker 1: you want to have an interconnected system, and Finance has
Speaker 1: its own chain, so they issue their own versions of tokens,
Speaker 1: and the rule is that for every token the issue,
Speaker 1: they should have the equivalent of the original token stored somewhere, right,
Speaker 1: so they're not just making money out of thin air
Speaker 1: or crypto tokens out of thin air. So um. What
Speaker 1: Emily sort of found out, or that she was told
Speaker 1: by a research firm was that they looked at sort
Speaker 1: of the wallets where Binance keeps the reserves and they
Speaker 1: published them and they had a lot more of tokens
Speaker 1: than what they'd issued. So that made it seem that
Speaker 1: the tokens, the tokens that are supposed to be reserves
Speaker 1: for the ones that issues, were stored in the same
Speaker 1: place as funds that customers put in on the exchange,
Speaker 1: which is bad, which is not ideal because then there's
Speaker 1: no way you know what is what, and then if
Speaker 1: you're a customer you want to withdraw or if you
Speaker 1: you know, you don't know what's where um or at
Speaker 1: a minimum, it's messy, and also it doesn't follow the
Speaker 1: guidelines that they themselves say they will do. So you know,
Speaker 1: Emily flagged it to them after the other report came
Speaker 1: out and Nance said yes, they admitted that there was
Speaker 1: an error. It was a mistake, it was an operational
Speaker 1: sort of issue, and they were fixing it. The same
Speaker 1: analysts flag that there was less backing for another coin,
Speaker 1: Binance his own version of another coin, a stable coin
Speaker 1: that it issue that is issued by a bank called
Speaker 1: Paxos that they all has Binance his brand name. So
Speaker 1: again it's quite technical. What I guess for a listener,
Speaker 1: what you need to know is that you know, Binance
Speaker 1: has been talking a lot about being transparent and you
Speaker 1: know called out FDx for um not lots of there
Speaker 1: are lots of things, yes, exactly, but it's also facing
Speaker 1: operational challenges. Is a big, big little mistake if you want,
Speaker 1: if you want, right, oh, we kept the tokens in
Speaker 1: the same place. We're going to fix it. You know,
Speaker 1: it's it's like five million worth of tokens we're talking
Speaker 1: right here, and it's kept in a wallet that starts
Speaker 1: sixteen billion worth of token. So it's just like a
Speaker 1: bit confusing because if you don't segregate customer funds, I
Speaker 1: guess they're both customer funds, but you have to distinguish
Speaker 1: between customer funds and the exchange customer funds because they
Speaker 1: backed tokens at you issue and just you know, this
Speaker 1: is all happening in an environment in which, you know,
Speaker 1: as Anna mentioned, Binance has been out ahead and calling
Speaker 1: for transparency, but also pretty much everybody else who is
Speaker 1: scrutinizing crypto right now is saying, you'll need to get
Speaker 1: your act together as it relates to being able to
Speaker 1: be very specific about what you hold, what the risks
Speaker 1: of those exposures are, how you know what those risks are,
Speaker 1: where customer funds are and so on. Yeah, that's right,
Speaker 1: And I think Finance really is at an interesting cross
Speaker 1: road here because ftx is collapse has really left them
Speaker 1: as the last giant standing. I mean, they grabbed a
Speaker 1: lot of market share from f t X and now
Speaker 1: they're by far the largest crypto exchange, and so they've
Speaker 1: come under a lot of a lot more scrutiny. And
Speaker 1: you could say, we haven't exactly seen that kind of
Speaker 1: existential risk you know with f t X. You know,
Speaker 1: Finance would say they've survived you know, higher withdrawals over
Speaker 1: the past few months, but kind of as Anna has
Speaker 1: talked about, I mean, we have seen some cracks appear
Speaker 1: under close scrutiny, you know, from the accounting for masters
Speaker 1: kind of withdrawing from crypto at a stations in general, um,
Speaker 1: you know, after they did finances so called proof of
Speaker 1: reserves report, and also these issues with um, you know,
Speaker 1: those wallets and Anna we're talking about, And so I
Speaker 1: think I think CS is definitely treading very carefully at
Speaker 1: this time because none of what either of you are
Speaker 1: saying is nefarious, right, Like, it's hard to keep on
Speaker 1: top of wallets, accounting firms going to accounting firm and
Speaker 1: they have they are entirely uh you know, they can
Speaker 1: decide at any points that they want to be participating
Speaker 1: in an ecosystem or they don't want to be participating
Speaker 1: in an ecosystem. I want to go back to something
Speaker 1: that you said about all this though, just you know,
Speaker 1: which is that finance is by far, like by far
Speaker 1: orders of magnitude, the most systemically important crypto exchange in
Speaker 1: the world, and that is bringing much more scrutiny than
Speaker 1: perhaps they are used to or necessarily want. And it's
Speaker 1: also bringing regulatory attention. Where and how is binance regulated? Wow,
Speaker 1: that's a great question. UM that probably had doesn't really
Speaker 1: have an answer because their policy all along has been
Speaker 1: too kind of be this global exchange on the Internet
Speaker 1: that's not really based anywhere, that doesn't exactly have a
Speaker 1: parent corporation. That's been kind of helpful in terms of,
Speaker 1: you know, not really being beholden to any particular regulator.
Speaker 1: But as regulatory scrutiny increase in recent years, they have
Speaker 1: tried to change that by starting to set up local
Speaker 1: entities that actually tried to register with regulators. But they've
Speaker 1: kind of had a few setbacks in this area. Obviously,
Speaker 1: sometimes it's the problem of regulators not exactly knowing what
Speaker 1: to do with them, but sometimes it's also that finance
Speaker 1: is not necessarily ready to make those compromises. And I
Speaker 1: think it'll be interesting to see where we go from
Speaker 1: here because at the same time rules are starting to tighten,
Speaker 1: so will finance be able to step up and change
Speaker 1: their internal operations fast enough to match that. I think
Speaker 1: that's not clear just yet. And to your point about
Speaker 1: rules starting to tighten, you know, just in the past
Speaker 1: couple of days, we've seen, um, the French who love
Speaker 1: voting on too votes to kind of tighten up in
Speaker 1: in one perspective, some rules that are governing cryptocurrencies. But
Speaker 1: on the other hand, you know, it's like less stringent
Speaker 1: types of policy than some folks were expecting. And one
Speaker 1: of the things that cz was talking about on Twitter
Speaker 1: recently was this, you know, he was kind of endorsing
Speaker 1: this idea of the need for a global aligned policy framework,
Speaker 1: which has very much become like the talking point of
Speaker 1: regulators everywhere. Right, But for what I'm hearing from you,
Speaker 1: just you know, it's like Finance is almost the opposite
Speaker 1: of operating under a global regulatory framework, where they've either
Speaker 1: taken the position that we are everywhere and therefore newhere,
Speaker 1: or we have these specific local entities that might be
Speaker 1: you know, compliance with laws in Germany or in Spain
Speaker 1: or in the US, but there's no kind of over
Speaker 1: arching crypto overlord to whom they are beholden. I think
Speaker 1: a lot of people were quite surprised when France actually
Speaker 1: gave finance like a registration of some kind, and they've
Speaker 1: since kind of faced a bit of backlash with that,
Speaker 1: and that's why they've kind of been talking about possibly
Speaker 1: even imposing mandatory crypto licenses and the vote you talked
Speaker 1: about false short of that, but it does require you know,
Speaker 1: more strange and conflict of interest management rules and and
Speaker 1: kind of more rules in general like that in order
Speaker 1: for entities to get registered in France. And so I
Speaker 1: think there's a question of, you know, whether finance will
Speaker 1: remain registered under these new rules. And also, I mean,
Speaker 1: how much to regulators even know about how these crypto
Speaker 1: exchanges work and how do they even monitor compliance. We'll
Speaker 1: be right back with more of the week's top crypto
Speaker 1: stories from Anna Arera and Justina Lee. I think one
Speaker 1: of the nuances that folks in crypto are finding right
Speaker 1: now is they're very much where the banks were in
Speaker 1: two thousand and eight, not necessarily in terms of the
Speaker 1: systemic risk of anything, but in terms of the fact
Speaker 1: that customers have lost money or lost faith or are
Speaker 1: starting to lose faith in the ecosystem. And that's a
Speaker 1: challenging place to be. And one of the things one
Speaker 1: of the ways we've seen industry respond is by just
Speaker 1: laying people off. Gemini Trust Company, the firm founded by
Speaker 1: the billionaire Winkel Box Twins, is cutting another ten percent
Speaker 1: of its workforce, adding to the wave of job cuts
Speaker 1: across the technology, fintech, and crypto industries at large. Just
Speaker 1: you know, you have reported on you know, finance for
Speaker 1: a long time, and you've been through these sort of
Speaker 1: waves of job job cuts and people being like, oh, no,
Speaker 1: I didn't get a million pound bonus this year. But
Speaker 1: but I think this level of retrenchment is relatively new
Speaker 1: for a lot of folks who came into crypto in
Speaker 1: the past two years. Yeah, that's right. And it's kind
Speaker 1: of funny because I guess a lot of them probably
Speaker 1: came from tech or by this as well, and now
Speaker 1: they're they're realizing that crypto itself is not in a
Speaker 1: boom cycle forever, and they're actually caught a lot of
Speaker 1: parallels between the crypto and the tech retrenchment that we're
Speaker 1: seeing in the sense that I think both industries um
Speaker 1: probably overextended during the boom years and are now forced
Speaker 1: to cut back, and also in the sense that they've
Speaker 1: both in a way suffered under these interest rate increases,
Speaker 1: which is a bit ironic for crypto probably. So I
Speaker 1: think you'll be interesting to see where these people end up,
Speaker 1: because I mean, tech is not really hiring again, and
Speaker 1: SO and finance is definitely not expanding either. And Anna,
Speaker 1: this is not your first crypto winto SO and SO.
Speaker 1: As you as you kind of look out with you know,
Speaker 1: the like the benefits of hindsight, where do people tend
Speaker 1: to go after these sorts of things happen. So I
Speaker 1: think the difference is just you know, saying is that
Speaker 1: in all crypto winters before everybody else was fine, so
Speaker 1: you could get laid off and go find the work.
Speaker 1: Because a developer for Google, there's like was like a
Speaker 1: fiercely intense battle for talent. And maybe that hasn't really
Speaker 1: died down. I'm not really sure, because you know, you're
Speaker 1: still building websites and you still need AI and you
Speaker 1: still need you know, developers everywhere. It's not like that's
Speaker 1: gone away. But maybe you have some of the fat.
Speaker 1: Like I love watching videos of employees from big tech
Speaker 1: firms on TikTok's say this is my I don't know
Speaker 1: if you've seen them, but like this is a day
Speaker 1: in the life of a Google and they're like picking
Speaker 1: like breakfast, and they have half a meeting and then
Speaker 1: they go pick snat and and then you know, so
Speaker 1: maybe that's like not the actual core people that they need.
Speaker 1: So some of them may may be super highly skilled
Speaker 1: blockchain developers, of which are still not many, right because
Speaker 1: this is a new technology will probably find place, but
Speaker 1: it won't be as easy. And I am hearing actually
Speaker 1: from head hunters that it's not as bad as other years,
Speaker 1: because there are still some firms that are still hiring,
Speaker 1: maybe the ones that came in and were a bit
Speaker 1: more level headed, perhaps ones that were funded by or
Speaker 1: arms of banks or other sort of more us uh
Speaker 1: like wild westy kind of vibes. So that might be
Speaker 1: a place, or you know, maybe they'll launch their own company.
Speaker 1: Sometimes that's what happens when they start launching their own
Speaker 1: companies because some of these people have money stashed away
Speaker 1: if if and so you know often you do here
Speaker 1: that when like there's moments like this, people start building
Speaker 1: new things. Believe we've got to it's time to build. Yeah,
Speaker 1: Like I'm thinking, I'm thinking the problem is where they're
Speaker 1: going to ask money for. But there are the all
Speaker 1: these giant funds with all this money that's just sitting there.
Speaker 1: Just as a as a kind of a closing thought,
Speaker 1: you know, we are ending January because time is a fiction.
Speaker 1: And in what is a kind of a classic of
Speaker 1: things that happened in media um, one of our colleagues,
Speaker 1: Mike Regan wrote, you know, a very smart story about
Speaker 1: how bitcoin and crypto markets more broadly were starting to
Speaker 1: benefit from the January effect, and like most other equities,
Speaker 1: were rallying. As soon as we published the story, everything
Speaker 1: went down. But but you know, just you know, I
Speaker 1: appreciate that you mentioned kind of the rate environment at
Speaker 1: the top. Are there any other like macro economic things
Speaker 1: that you are tracking, whether whether you know, sentiment around
Speaker 1: the interest rates, whether the state of strikes in the
Speaker 1: UK that you think might be affecting sentiment more broadly
Speaker 1: across crypto. Yeah. Maybe Before I came in here, I
Speaker 1: was just looking at the correlation between the SMP five
Speaker 1: hundred and bitcoin, and it's still very much positive. And
Speaker 1: obviously that's always been a bit ironic because after years
Speaker 1: of bitcoin enthusiasts talking about how it's an inflation hedge,
Speaker 1: it's kind of turned out to be the opposite. Obviously,
Speaker 1: I guess that's partly particular to this macro environment and
Speaker 1: the fact that crypto was held by a lot of
Speaker 1: retail investors that gets scared as soon as they're they
Speaker 1: see that their stocks and bonds are also falling, and
Speaker 1: so it's kind of become, you know, this fact that
Speaker 1: if you want to know where bitcoin is going, you
Speaker 1: need to know where risky assets in traditional markets are going.
Speaker 1: And it does seem like they're headed for a better
Speaker 1: year because with signs of inflation peaking in the US
Speaker 1: and perhaps even slower economic growth, the FED will slow
Speaker 1: down interest rate hikes, so that should be good news
Speaker 1: for crypto. Um So, funnily enough, everyone is still watching
Speaker 1: Jerome Powell, the most powerful man in markets. Well, thank you, Anna,
Speaker 1: thank you, Justina, appreciate you joining us. Thank you. That
Speaker 1: was Bloomberg Senior editor Anna Irrera and Bloomberg reporta Justina Lee.
Speaker 1: You can find more of their work on the Bloomberg
Speaker 1: terminal on Bloomberg dot com, and if you check out
Speaker 1: our twice weekly newsletter, Bloomberg Crypto, you'll find them there too.
Speaker 1: This is Bloomberg Crypto, a daily podcast from Bloomberg and
Speaker 1: I Heart Radio. For more shows from I Heart Radio,
Speaker 1: visit the I Heart Radio app, Apple Podcasts, or wherever
Speaker 1: you get your podcasts. Send us your comments, questions or
Speaker 1: suggestions for the show to Crypto at Bloomberg dot net.
Speaker 1: The supervising producer of Bloomberg Crypto is Vicky Vergelina. Our
Speaker 1: senior producer is Janet Babin. Our producers are Mohammed Farouk
Speaker 1: and Sharon Barriro. Our associate producers are Ty Butler and
Speaker 1: Moses on Them. Desta wonder At is our engineer. Original
Speaker 1: music by Leo Sidron. I'm Stacy Marie Schmal We'll be
Speaker 1: back tomorrow.