Speaker 1: From Marhart where Innovation, Money and Power Collie in Silicon Valley, NBN.
Speaker 1: This is Bloomberg Technology with Caroline Hyde and.
Speaker 2: Ed Love Love.
Speaker 3: I'm Caroline Heide of Bloomberg's World headquarters in New York
Speaker 3: and Lovelow. He's on assignment. This is Bloomberg Technology. Coming
Speaker 3: up the trial of Sam Magman Freed. He kicks off
Speaker 3: in Manhattan as he faces charges of swindling millions of
Speaker 3: dollars from his crypto platform FTX. We of course will
Speaker 3: have full coverage ahead. And as micro Versus is a
Speaker 3: cybersecurity probe by the Chinese government, a bipartisan group of
Speaker 3: US senators where they're looking to visit China to address
Speaker 3: this very issue, we'll have more on the US China relations,
Speaker 3: plus and artificial intelligence. Can it help hedge funds outperform?
Speaker 3: The answer, well, that's not so so straightforward. For breakdown
Speaker 3: the results in our Bloomberg Big Take later this hour,
Speaker 3: But first let us check on these markets. We're looking
Speaker 3: at strength in the US dollar as we anticipate maybe
Speaker 3: a FED having to remain hawkish.
Speaker 4: We're up some three tens a percent.
Speaker 3: Look, this is the strongest the Dollar index has been
Speaker 3: in about ten months.
Speaker 4: Moving on, what does that mean? Well, for another key asset.
Speaker 3: That we look at versus the US dollar, Bitcoin currently
Speaker 3: on the lower side world by one point eight percent
Speaker 3: on the day, and this is after we'd seen a
Speaker 3: little bit of buying yesterday. So once again, is it
Speaker 3: profit taking or is it also a look towards the
Speaker 3: trial of Sam bagmuin freed what does the industry make
Speaker 3: of it?
Speaker 4: As it starts today? We know that he's.
Speaker 3: Facing charges that he's sort of billions of dollars from
Speaker 3: his crypto platform FTX. Let's go out to Kaylee Lines
Speaker 3: for more, who is on the ground in front of
Speaker 3: the U. S. District Courthouse and just tell us exactly
Speaker 3: the state of play what we're anticipating today.
Speaker 5: Kaylee, Well, today, Carolina, it really is all about jury selection.
Speaker 5: This is just one step in what could be a
Speaker 5: trial that plays out over the course of the next
Speaker 5: six weeks at a maximum. Today they are looking at
Speaker 5: potential jurors, vetting them as we see they have dismissed
Speaker 5: a number already, and we understand the judge is hoping
Speaker 5: to finish today, if not be finished by tomorrow morning,
Speaker 5: and then once the jury has said it really will
Speaker 5: get into the argument phase of this case. As you mentioned,
Speaker 5: he is facing a number of charges related to fraud
Speaker 5: and money laundering.
Speaker 4: Seven in total.
Speaker 5: If convicted of the maximum sentence, he could spend the
Speaker 5: rest of his life in prison. We could be looking
Speaker 5: at a sentence here of over one hundred years if convicted.
Speaker 5: He of course has pleaded not guilty. But really, over
Speaker 5: the course of this trial is when we're going to
Speaker 5: see a lot of the facts of the case born out,
Speaker 5: both from the prosecution and then of course the defense.
Speaker 5: Sam bankman Fried has frequently said it was never his
Speaker 5: intent to commit fraud on anyone, and.
Speaker 3: Of course this has ramifications for those who are watching
Speaker 3: exposure with FTX, but more broadly crypto as a whole.
Speaker 4: Of course, on the shining like.
Speaker 3: Within our crypto show that's playing out later, Kaylee, What
Speaker 3: does the industry make of all of this?
Speaker 4: Are they waiting with beta breath? Yeah?
Speaker 5: In many ways, Caroline, the industry already has been grappling
Speaker 5: with the after effects of FTX and alimeter researches, enclosure
Speaker 5: and the allegations that were made against Sam bankman Free.
Speaker 5: Because we have to keep in mind this individual, we
Speaker 5: are referring to this thirty one year old was not
Speaker 5: just the CEO of FTX, he was also a leading
Speaker 5: voice for the crypto industry as a whole. He frequently
Speaker 5: appeared on Capitol Hill lobby before lawmakers for the industry.
Speaker 5: He was seen as one of the most credible voices
Speaker 5: in the business, and so when all of that imploded,
Speaker 5: the credibility of the wider industry really did take a hit. Now,
Speaker 5: this could be somewhat of a cathartic moment for the
Speaker 5: industry once this trial is wrapped up and they can
Speaker 5: kind of put the issue to bed.
Speaker 4: But I think in a lot of.
Speaker 5: Ways, the industry is still dealing with the after effects,
Speaker 5: still trying to recover, re establish some of the credibility
Speaker 5: as there's a lot of regulatory and legislative effort underway
Speaker 5: in Washington, and the Sam Bankman free aftertaste may still
Speaker 5: be lingering in some ways, and this trial could really
Speaker 5: revive a lot of that dirty laundry a well.
Speaker 3: Put kayleie lyones, thank you. We appreciate the coverage throughout
Speaker 3: the day, and we want to now bring you some
Speaker 3: expertise him in terms of what this does mean for
Speaker 3: the industry regulation written Lard also central bank adoption. Ishua
Speaker 3: prasadam pleased to say, Cornell University professor of Trade Policy
Speaker 3: is with us.
Speaker 4: And of course, most.
Speaker 3: Notably you have worked for the IMM the International Monetary Fund.
Speaker 4: But also you're the author of the.
Speaker 3: Future of money, how the digital revolution is trans forming
Speaker 3: currencies and finance. What does this particular lawsuit, this particular
Speaker 3: moment in history mean for the adoption more broadly of
Speaker 3: crypto do you think.
Speaker 1: So, Caroline.
Speaker 6: As Katie correctly pointed out, the industry is hoping that
Speaker 6: this will be a cathartic moment in the sense of
Speaker 6: cleaning out some of the Charlattans and perhaps also providing
Speaker 6: some regulatory clarity if regulators do move forward.
Speaker 1: But the reality is.
Speaker 6: That Sambangmenfield again was seen as a messiah in some
Speaker 6: of these circles, and he was seen as delivering on
Speaker 6: some of the promises of decentralized finance.
Speaker 1: Now, what the FTX collapse.
Speaker 6: Really shows is how far the no of bitcoin and
Speaker 6: decentralized finance, which was supposed to turn away from traditional
Speaker 6: financial institutions, how far it has strayed from that promise.
Speaker 1: In effect, what we are seeing is that many of the.
Speaker 6: Problems of traditional finance are being imported into the cryptocurrency world,
Speaker 6: in particular centralization in the form of exchanges like ftx,
Speaker 6: which becomes single points of failure, and the notion that
Speaker 6: we can actually have decentralized trust, which is the whole
Speaker 6: underpinning of bitcoin, doesn't quite seem to be bearing out,
Speaker 6: because we are seeing that people seem to want to
Speaker 6: hold their crypto assets in centralized exchanges like ftx, where
Speaker 6: they also undertake trading activities. So right now we seem
Speaker 6: to be seeing a lot more centralization rather than decentralization.
Speaker 4: That's interesting.
Speaker 3: Where could we see an optimization of decentralized exchanges they
Speaker 3: do exist, there's unis what for example, how are we
Speaker 3: seeing a movement towards that future of crypto at all.
Speaker 6: I think we are beginning to see a bit of
Speaker 6: a bifurcation. There are many people who view bitcoin and
Speaker 6: other cryptocurrencies as financial assets really, and those are the people,
Speaker 6: including many somewhat nie retail investors, who seem to be
Speaker 6: taking the speculative approach to cryptocurrencies and they're holding onto
Speaker 6: these assets. But at the same time there is actually
Speaker 6: a rather vibrant market of decentralized finance, which so far
Speaker 6: has not really delivered and its promise of democratizing finance.
Speaker 6: It's created a lot of financial engineering, speculation and so forth.
Speaker 6: But I think there is real promise there that with
Speaker 6: blockchain technology we might be able to move to a
Speaker 6: world where we no longer rely on traditional institutions, where
Speaker 6: blockchain based finance through smart contracts and so on, can
Speaker 6: make financial systems a lot more efficient.
Speaker 4: What is necessary to get there?
Speaker 3: Is it clear regulation, not just in the US, but
Speaker 3: more globally.
Speaker 6: Regulation is certainly going to be needed, Carol, And I
Speaker 6: think regulation that creates guard rails, so that first of all,
Speaker 6: you have some of the basic elements of financial stability,
Speaker 6: institution specific stability as well as systemic stability taken care of,
Speaker 6: investor protection considerations taken care of, and most importantly, guardrails
Speaker 6: to make sure that we don't have excessive concentration in
Speaker 6: the space or decentralized finance being used purely for speculation
Speaker 6: or for illicit transactions of various sorts.
Speaker 1: And I think the.
Speaker 6: Notion of the industry policing itself through technology, I think
Speaker 6: it's not going to work. We are going to need
Speaker 6: some guardrails, and the question is how best do we
Speaker 6: set up those guardrails without stifling the innovation together. I
Speaker 6: think there are steps being taken in many jurisdictions, including
Speaker 6: the US, but we are still a long way away
Speaker 6: from the right sort of regulatory environment so that we
Speaker 6: can get this ecosystem to foster and thrive without necessarily
Speaker 6: creating illegal and illicit activities.
Speaker 3: Sure give us your therefore birds eye perspective, your global
Speaker 3: expertise here, because are there areas where you think leading
Speaker 3: the charge in terms of a best fit regulatory environment.
Speaker 6: Now, Europe, the United Kingdom, and Japan have move forward
Speaker 6: in terms of at least trying to define various categories
Speaker 6: of cryptocurrencies and crypto assets more broadly, and that's certainly
Speaker 6: helpful as a start, but I think a Caroline, there
Speaker 6: is really still a sort of conceptual struggle going on
Speaker 6: in terms of trying to decide whether one can take
Speaker 6: existing regulatory frameworks and fit these new products into them,
Speaker 6: or if these are new technologies that require completely different
Speaker 6: regulatory frameworks. One thing that is becoming clear is that
Speaker 6: these are not the traditional sorts of products. They do
Speaker 6: have spilloversts into traditional financial systems, and they're going to
Speaker 6: need a coordinator approach at the global level rather than
Speaker 6: fragmented approaches at the national level. So we're making progress,
Speaker 6: but very slowly.
Speaker 3: What does the role of the central banks have here, Ishue,
Speaker 3: I know this is something you've looked in more broadly
Speaker 3: because of the digital revolution, as you call it in
Speaker 3: your book, how it's impacting currencies more broadly.
Speaker 6: I think the biggest legacy of cryptocurrencies really is going
Speaker 6: to be that they have shown a pretty harsh light
Speaker 6: into the inefficiencies of traditional financial systems, especially international payments.
Speaker 1: Now central banks are responding.
Speaker 6: To this, partly through regulat reactions, but partly also by
Speaker 6: fostering better forms of digital payments that are much more inclusive.
Speaker 6: In many parts of the world, payments are largely digital already,
Speaker 6: with physical currency or cash not playing a big role.
Speaker 6: So many central banks are moving towards central bank digital
Speaker 6: currencies that can be.
Speaker 1: Used for retailed payments.
Speaker 6: In the US, it is catalyzed action by the effect
Speaker 6: to move towards a suite of better wholesale and retail.
Speaker 1: Payments in the form of FED now.
Speaker 6: So I think a lot of nice changes are brewing
Speaker 6: in financial systems, including in domestic international payments thanks to
Speaker 6: crypto currencies. But whether crypto currencies themselves will play a
Speaker 6: very important role in this I think remains.
Speaker 1: To be seen.
Speaker 3: There is therefore this sort of tension between generally a
Speaker 3: centralized version of what the utopia is of purity centralization
Speaker 3: and then and of course there's the need for regulation.
Speaker 3: Well broadly, when you've written a book about this, when
Speaker 3: we've seen the highs and the lows of exuberance around
Speaker 3: crypto die off, how many people are still asking you
Speaker 3: for your guidance?
Speaker 4: How many years do you think this wi ultimately take.
Speaker 6: I think there is a fundamental shift in terms of
Speaker 6: digitization of payments as I mentioned, but also you know,
Speaker 6: the ability for financial institutions to conduct existing forms of
Speaker 6: business in more efficient ways, but also to foster more
Speaker 6: competition among financial systems. And certainly, as we see cross
Speaker 6: boarder finance become much more friction free thanks to these
Speaker 6: new technologies which are being adopted even by traditional financial institutions,
Speaker 6: I think we will see significant efficiency gains.
Speaker 1: The real concern is whether.
Speaker 6: Like in the cryptocurrency EQUL system, we end up seeing
Speaker 6: even more concentration in traditional finance because existing incumbents could
Speaker 6: end up using these technologies to their advantage. And I
Speaker 6: think this is where regulators will play a very important
Speaker 6: role to make sure that regulations don't just become a
Speaker 6: barrier to entry for new financial firms, but just create
Speaker 6: new guard rails for this innovation to thrive.
Speaker 3: Asuan really great to get your expertise as an author
Speaker 3: and of course as a professor a trade policy over
Speaker 3: at Cornell University issue process there, we thank you. Meanwhile,
Speaker 3: coming up, look, we're going to talk about the future
Speaker 3: of regulations slightly differently. Here US senators hoping to meet
Speaker 3: the Treasure and present changing paying in China next week,
Speaker 3: and that's just talks about Micron are clearly on the agenda.
Speaker 3: We're going to unpack what the congressional leaders hope to
Speaker 3: accomplish on their visit. Meanwhile, let's head over to Asia.
Speaker 3: When we're looking at one particular stock, we have seen
Speaker 3: the trading of it here in the United States, of course,
Speaker 3: American depository receipts of TSMC now notable that this stock
Speaker 3: has eraised seventy seven million dollars of its market cap
Speaker 3: since the June high. It's basically well lost more value
Speaker 3: than any other Asia traded stock. We're bracing for their
Speaker 3: earnings October the nineteenth, but also for the prolonged weakness
Speaker 3: in the chip sector.
Speaker 4: We're currently under pressure once again. Today. This is Bluebog
Speaker 4: technology time. Now for talking tech.
Speaker 3: First up, several Taiwan based tech firms. We're actually helping
Speaker 3: Huawei build a secret network of chip plants across southern China.
Speaker 3: Now it's unclear whether the company's potential involvement violates American
Speaker 3: sanctions because of just how complex the curbs against Huawei are,
Speaker 3: but Huawei did not respond to a request for comment
Speaker 3: on Bloomberg story. Meanwhile, Japan is approving as much as
Speaker 3: one point three billion dollars in subsidies for Micron's Hiroshim factory.
Speaker 3: This will help Micron install ASML that's the European maker
Speaker 3: of equipment. It's extreme ultra violet lithography equipment used to
Speaker 3: make advanced chips.
Speaker 4: That the approval marks.
Speaker 3: A win for Micron as it grapples with uncertainty in China,
Speaker 3: one of its largest markets. And also on Micron, and
Speaker 3: let's talk about that Chinese relationship. A bipartisan group of
Speaker 3: US senators hope to meet President Hujinping in China next
Speaker 3: week with discussions about Micron being top of Maligne. The delegation,
Speaker 3: led by Senate Majority Leader Chuck Schumer and Republican Micropo,
Speaker 3: will raise the issue of Micron's ability to do business
Speaker 3: in China. It's all according to Bloomberg sources, Micron faces
Speaker 3: an ongoing probe by the Chinese government cybersecurity administration. And
Speaker 3: we want to get more on this entire story with
Speaker 3: amriy Horden co host a balance of power and I mean, ultimately,
Speaker 3: how likely is it that these senators will actually meet
Speaker 3: with Jingping.
Speaker 7: Well, we do know from an interview our colleagues had
Speaker 7: with Senator Mike Crapo that that is one ask, But
Speaker 7: so far at this moment, Chijingping has not guaranteed that meeting.
Speaker 7: There's going to be a flurry of meeting when these
Speaker 7: group of by Parson senators go over to Beijing.
Speaker 4: We do know that in twenty.
Speaker 7: Fifteen, Shijingping did sit down with a number of congressional
Speaker 7: leaders on a state visit. But normally these trips, what
Speaker 7: you would see is that senators or any sort of lawmakers,
Speaker 7: a cabinet minister. They would meet with other ministers within
Speaker 7: the Chinese Communist Party government apparatus, but not Sijingping himself.
Speaker 7: But potentially a she meeting could be on the agenda,
Speaker 7: and this could also open up the door for that
Speaker 7: Biden Shijingping also potential meeting that could happen in November
Speaker 7: at APAK.
Speaker 2: So that's the first thing.
Speaker 7: Potentially there's a she meeting with these by Parson group.
Speaker 4: Of senators, the others.
Speaker 7: Of course, what's brought up, So Senator Schumer said, other
Speaker 7: things will be brought up, like human rights, like fetanyl.
Speaker 7: But we do know that Micron is really important for
Speaker 7: both these this vice partisan group, not just where Micron
Speaker 7: is headquartered, but where they're potentially going to build new factories.
Speaker 7: One is going to be put in New York. And
Speaker 7: Micron came out over the summer saying about half of
Speaker 7: their sales are linked to companies headquartered in China.
Speaker 4: This cybersecurity review has been a huge.
Speaker 7: Deal on this company, whether or not how much they
Speaker 7: could do business in China, but also on their revenue.
Speaker 3: I mean, what is it about half of its China
Speaker 3: sales seem to be at risk?
Speaker 4: At the moment. So you're reminding us.
Speaker 3: At Crapo's course of showing the support of Boise Idaho.
Speaker 4: You've got Chuck Schumer of New York.
Speaker 3: But why coalesces around this particular company this particular moment,
Speaker 3: What does it say more broadly about US China tech relations.
Speaker 4: Because it's disintegrating sort of across the board. Well, it
Speaker 4: has disintegrated.
Speaker 7: Part of the Chinese government will say that is because
Speaker 7: of the export controls and the other penalties and sanctions
Speaker 7: that you're seeing from this administration. This administration, the Biden
Speaker 7: administration has been very clear they want to take a
Speaker 7: narrow approach, but they do want to make sure that
Speaker 7: China is unable to get their hands on critical tech
Speaker 7: that potentially China could use to bolster their military. So
Speaker 7: many see that what China has been doing in terms
Speaker 7: of the Cybersecurity administration looking at what's going on in micron,
Speaker 7: they view that as a tit for tat coming back
Speaker 7: to the United States about what they did, what they're
Speaker 7: doing when it comes to US technology that companies want
Speaker 7: to get their hands on in China. So it does
Speaker 7: feel like is an all time low, which is why
Speaker 7: if these Senators were to meet with Shijing Ping, it
Speaker 7: potentially could help thaw some of that, especially when it.
Speaker 4: Comes to Micron.
Speaker 3: Why to Micron is still coming full sackle. We thank
Speaker 3: you so much, Blue Mix Amory Holden with a breakdown.
Speaker 2: Then this, in my.
Speaker 8: Opinion, is going to be a super huge impact general
Speaker 8: AI and so on. It can have an enormously beneficial
Speaker 8: productivity impact.
Speaker 3: Ray Dally there with our own David Weston talking about
Speaker 3: the impact of AI, but sticking with more broadly artificial intelligence,
Speaker 3: how it's up ending many industries, and we keep talking
Speaker 3: about on the show.
Speaker 4: But when it comes to actually hedge.
Speaker 3: Funds like Bridgewater Associates, many money managers just answering the
Speaker 3: technology actually lead to outperformance. It's a subject of today's
Speaker 3: Bloomberg Big Take, and one place to say that one
Speaker 3: of the authors is with us Bloomberg's Justina Lee and
Speaker 3: fascinating deep dive that you do to show that at
Speaker 3: the moment, while all these stocks are worring higher on
Speaker 3: the back of AI bets, actually deploying AI within the
Speaker 3: stock picking industry is pretty hard to do, right.
Speaker 4: Yeah, exactly.
Speaker 9: I mean, it really is the irony of this year's
Speaker 9: stock market. And I think what a lot of investors
Speaker 9: are discovering is that financial data is very different from
Speaker 9: a lot of other kinds of data because it's a
Speaker 9: bit like if you were training Chad GPT and like gibberish,
Speaker 9: because if you look at you know, what is moving
Speaker 9: the SMP five hundred every day. I mean, there's so
Speaker 9: much noise in there that you're just kind of pushing
Speaker 9: all that data through the machine. I mean, the machine
Speaker 9: is picking up a lot of noise which might not
Speaker 9: be that helpful in helping you predict what happens, you know,
Speaker 9: to the SMP tomorrow. And I think that is the
Speaker 9: problem that a lot of hedge funds are running into.
Speaker 9: But that's definitely not stopping a lot of quantitative investors
Speaker 9: from trying to like crack that puzzle.
Speaker 3: And they've actually been trying to crack the puzzle for
Speaker 3: long before Chatch GPT became part of our Lexican RT.
Speaker 3: Justina and talk to us about some of the individuals
Speaker 3: who spoke to in particularly the co founder of Research
Speaker 3: Affiliates went off and founded in twenty sixteen, I think
Speaker 3: was it reliant Global Advisors and AI driven sort of
Speaker 3: quin fund, and well he was really upended during the
Speaker 3: COVID crisis, right, because there's just no data for that.
Speaker 9: Yeah, I think the COVID crisis is a great illustration
Speaker 9: of why AI is really hard on finance, because you know,
Speaker 9: the English language is not that different.
Speaker 4: You know, one hundred years.
Speaker 9: Ago from now, cats and dogs have looked the same,
Speaker 9: and that's why our iPhone can kind of recognize animals.
Speaker 9: But you know, when it comes to financial data, there
Speaker 9: are a lot of regime changes. But I think the
Speaker 9: hope for a lot of people like Jason you know,
Speaker 9: who's the co founder of Research Affiliates, who is a
Speaker 9: convert to using machine learning in finance, is that he's
Speaker 9: hoping if you feed a lot of the data into
Speaker 9: the machines, they're kind of picking up how the environment
Speaker 9: is changing as well, and that will make his systems
Speaker 9: more adaptive. And that is sort of I think the
Speaker 9: dream of a lot of people that are trying to
Speaker 9: apply machine learning in finance.
Speaker 4: At the moment.
Speaker 3: Though with AI, with all the issues with the data
Speaker 3: garbaging garbage out, are we able to still see that
Speaker 3: quant funds and indeed, just AI driven ways of stop
Speaker 3: picking is kind of okay compared to people. Are we
Speaker 3: already seeing jobs being lost?
Speaker 4: Yeah, I think for now, not just yet.
Speaker 9: I mean, if we look at the track record of
Speaker 9: AI hetch funds, you know, there is a hedge fund index.
Speaker 9: I mean, they're not really doing much better than the
Speaker 9: hedge fund industry overall, and so it's not obvious that
Speaker 9: they're necessarily better than humans. But one perspective I've heard
Speaker 9: from reporting this story is that in a way they
Speaker 9: don't need to be better than humans. I mean, if
Speaker 9: you can kind of run a portfolio that does just
Speaker 9: as better but with far fewer humans, that might already
Speaker 9: be more efficient. And I think we kind of, you know,
Speaker 9: zoom out a little bit and look at kind of
Speaker 9: the use of AI in terms of productivity hacks. I mean,
Speaker 9: everywhere on Wall Street we're seeing a lot of uses
Speaker 9: for you know, using something like chat GPT to summarize research,
Speaker 9: to like write the code, or there are now a
Speaker 9: lot of efforts in using kind of these machines to
Speaker 9: like read the news that we write, or kind of
Speaker 9: read tweets that we post and to try to kind
Speaker 9: of turn those into trading signals. And so I think
Speaker 9: there are a lot of uses, even if not everyone's
Speaker 9: kind of using AI to try to beat markets in finance.
Speaker 3: You'd be very successful by just being a little bit
Speaker 3: better than fifty percent.
Speaker 4: That's a great quote in your story.
Speaker 3: Well, thank you so much, DestinE Eli.
Speaker 4: Welcome back to New bag Technology. Let's get back to.
Speaker 3: Some of that indiosyncratic news when it comes to SPF
Speaker 3: Sam by Manfred. He has charged with seven counts of
Speaker 3: ford and money laundering. We know a case that has
Speaker 3: been going on for nearly a year now, So how
Speaker 3: do we get here? Some quick reminder, Katie Lyon's got
Speaker 3: the breakdown on the series of unfolding events.
Speaker 9: Granted.
Speaker 2: I thank you guys.
Speaker 5: In the span of three years, Sam Bankman Freed became
Speaker 5: one of crypto's biggest stars. In May twenty nineteen, Bankman,
Speaker 5: Freed and business partner Gary Wong founded FTX. It's goal
Speaker 5: to create a safe and responsible platform for traders. By
Speaker 5: October twenty twenty one, venture capitalists had poured millions into FTX,
Speaker 5: and a list celebrities like former NBA player Shaquille O'Neill,
Speaker 5: model Gisel Buncheon, and comedian Larry David had endorsed it.
Speaker 5: That same year, the firm was valued at twenty five
Speaker 5: five billion dollars, and users soared to more than five
Speaker 5: million globally, at least one point two million of them
Speaker 5: in the US. The ftx's name became well known, appearing
Speaker 5: on T shirts, in commercials, and even on an NBA arena.
Speaker 5: By early twenty twenty two, the Bahamas based company's valuation
Speaker 5: skyrocketed to thirty two billion dollars. FTX had become one
Speaker 5: of the world's biggest crypto exchanges. Big Benfried's net worth
Speaker 5: climbed to twenty six billion dollars, and he said he
Speaker 5: wanted to do good with his money, following effective altruism.
Speaker 4: I both think it's not what I should do with
Speaker 4: my money.
Speaker 2: I think I should be thinking about how I can
Speaker 2: help the world with it.
Speaker 5: The then thirty year old also became a major political donor.
Speaker 5: He contributed tens of millions to bipartisan political action committees
Speaker 5: and frequented Capitol Hill to be a voice for his
Speaker 5: company and be industry. At the time, he had no
Speaker 5: plans to slow down.
Speaker 10: I'm going to be here for the long term.
Speaker 2: I have no plans to leave. You know, that is
Speaker 2: not something that is on MI drive.
Speaker 5: But in November of twenty twenty two, things began to unravel.
Speaker 5: Coindesk reported that the crypto hedge fund Bankment Freed had
Speaker 5: also founded, Alometer Research, had a significant portion of its
Speaker 5: assets made up of FTT, a token that FTX created.
Speaker 5: In response. On November sixth, CZ, the CEO of rival
Speaker 5: crypto exchange Finance, posted to social media saying quote, we
Speaker 5: have decided to liquidate any remaining FTT on our books.
Speaker 5: The move triggered a massive wave of withdrawals, sort of
Speaker 5: like a run on the bank, and FTX didn't have
Speaker 5: the funds to meet them. In a rescue attempt, FTX
Speaker 5: reached a deal with Finance to sell itself, but Finance
Speaker 5: backed out.
Speaker 2: We became very quickly.
Speaker 6: There was a lot of funds missing, like on to
Speaker 6: the tunes of double digit billies.
Speaker 1: I couldn't trust any of the information in the data room,
Speaker 1: so by.
Speaker 5: November eleventh it was over. FTX filed for bankruptcy and
Speaker 5: Bankment Freed resigned as CEO That same month. He apologized
Speaker 5: at a public event.
Speaker 4: I made a lot of mistakes.
Speaker 10: Are things I would give anything to be able to
Speaker 10: do over again.
Speaker 11: I didn't ever I try to commit fraud on anyone.
Speaker 5: But just a few weeks later, Sam Bankminfried was indicted,
Speaker 5: accused of misappropriating billions of dollars at the cryptocurrency exchange.
Speaker 10: It's fair to say that by any anyone's licens is
Speaker 10: one of the biggest financial frauds in American history.
Speaker 3: Great breakdown from Katie lines. What does it meant for
Speaker 3: institutional adoption for the hope of crypto? More broadly, let's
Speaker 3: talk about it with Bitwise asset Management CIO Matt Hogan,
Speaker 3: who joins us now for has taken all of this,
Speaker 3: and you've got your own news to bring to the
Speaker 3: table about offerings to institutions. But just focus on the
Speaker 3: trial and the start today for you. Will this be
Speaker 3: a cathartic moment for the industry? Is it gonna be
Speaker 3: more pain before the sun comes again?
Speaker 2: Yeah, it's a.
Speaker 10: Great question, Caroline. I think of it as mostly old news.
Speaker 10: You know, we work with primarily institutions and financial advisors,
Speaker 10: and from about November to April they wanted to talk
Speaker 10: a lot about FTX and what it meant. But earlier
Speaker 10: this summer Blackrock announced it was launching or trying to
Speaker 10: launch a spot bitcoin etf you know, the world's largest
Speaker 10: asset manager, saying the coast is clear. We're ready to
Speaker 10: move on. We're ready to move to a new era
Speaker 10: of crypto. Kind of put a cap on the FTX conversation.
Speaker 10: So it honestly hasn't come up in the past few months.
Speaker 10: I think there'll be some lurid coverage of the FTX trial,
Speaker 10: but that is crypto of the past. I think a
Speaker 10: lot of people are thinking, what happens next in crypto,
Speaker 10: what's exciting, Let's move.
Speaker 4: On, okay, And so you're a lot of that excitement.
Speaker 3: Some of the catalysts for actually bitcoin itself and the
Speaker 3: rally that we've seen in some of the digital tokens
Speaker 3: has been the hope of a spot ETF. You're still
Speaker 3: offering ETF and ETP products, this time related to eth
Speaker 3: for the first time. Can you talk us through that
Speaker 3: and why you're not needing to have a spot one
Speaker 3: for the time being.
Speaker 4: It's more about the futures.
Speaker 1: Yeah.
Speaker 10: Absolutely, we're very excited to eventually launch spot ETF both
Speaker 10: on Bitcoin and ethereum once the SEC allows that. But
Speaker 10: we shouldn't let the perfect be the enemy of the good,
Speaker 10: and so this week we launched two ethereum.
Speaker 2: Tied ETFs a ether and b TOP a eth.
Speaker 10: Is one hundred percent ethereum futures, b TOP fifty percent
Speaker 10: bitcoin fifty percent ethereum futures. Those ETFs are going to
Speaker 10: be very highly correlated to the underlying price of ethereum
Speaker 10: in bitcoin, and people have the chance to invest today.
Speaker 10: You know, if you think about when the first spot
Speaker 10: bitcoin ETF was filed way back in twenty thirteen, the
Speaker 10: price a bitcoin was below one hundred dollars a coin.
Speaker 10: If you've been waiting for that spot bitcoin ETF to come,
Speaker 10: you've missed.
Speaker 2: A lot of appreciation.
Speaker 10: I think there are a lot of investors out there
Speaker 10: that Noah, spot bitcoin ETF is coming, think an ethereum
Speaker 10: spot ETF is coming, and want to get now ahead
Speaker 10: of them. And for those investors, Ahan, b TOP are
Speaker 10: great solutions.
Speaker 3: So tar to us, who these investors are, How big
Speaker 3: are we playing? What sort of institution is it coming
Speaker 3: to want to get into your product?
Speaker 2: Yeah, it's an amazing question.
Speaker 10: Because retail grew into this trillion dollar asset class really
Speaker 10: on the back of retail investors. We haven't seen financial
Speaker 10: advisors come in a major way. We haven't seen institutions
Speaker 10: come in a major way. But as you and I know,
Speaker 10: that's the majority of the market, maybe eighty percent of
Speaker 10: all the wealth in America.
Speaker 2: Hasn't really tapped into.
Speaker 10: Crypto yet because they can't invest through an app on
Speaker 10: their phone. They need regulated ETFs. And so I think
Speaker 10: this is the start of a game changer for the
Speaker 10: crypto industry. I think we're going to see significant inflows
Speaker 10: that eighty percent of the market that's outside is going
Speaker 10: to come in and a year from now, two years
Speaker 10: from now, crypto is going to be a mainstream asset
Speaker 10: that fits in portfolios alongside stocks, bonds, real estate, and
Speaker 10: other commodities. It's going to be mainstream in a major way.
Speaker 3: What gives you that confidence, though, because we had that
Speaker 3: a couple of years ago and then volumes slowed to
Speaker 3: a trickle. Institutional adoption just fell off a cliff.
Speaker 2: Yeah, I'd point to three things.
Speaker 10: One, we now have ETFs right for a long time,
Speaker 10: people criticize this SEC for being too slow to approve ets,
Speaker 10: but we had none until twenty twenty one. Now we
Speaker 10: have close to a dozen and more are coming. So
Speaker 10: we have ETFs that brings it mainstream. Two, we have
Speaker 10: large asset managers coming into the space, Blackrock, Fidelity, Franklin, Templeton,
Speaker 10: the big teams are coming and that means a million
Speaker 10: more conversations with professional investors. And then the third most
Speaker 10: important thing, we're starting to see the real world use
Speaker 10: cases that people have been asking for. Just today UBS
Speaker 10: is out with UBS tokenization, talking about tokenizing bonds on
Speaker 10: the public Ethereum blockchain, the same blockchain you can invest
Speaker 10: in through AE. And I think we're going to see
Speaker 10: a blossoming of real world applications and that's what's going
Speaker 10: to bring the institutions.
Speaker 3: I suppose it has everyone been waiting for the killer
Speaker 3: DApp when it comes to the retail community. But also,
Speaker 3: you know this ongoing narrative that like, oh, we like
Speaker 3: the underlying technology, but we don't really like the assets
Speaker 3: in and of themselves. Why would the adoption of blockchain
Speaker 3: technology for tokenization of assets private or public really be
Speaker 3: according cont want to buy into an ether etf.
Speaker 2: Oh amazing question.
Speaker 10: If you look back a few years ago, there were
Speaker 10: all these projects on private blockchains. You'll remember JP Morgan
Speaker 10: had a private blockchain and people are like, yeah, that will.
Speaker 2: Be the future.
Speaker 10: It's like the intranet in the early days of the Internet.
Speaker 10: If you look at the pilot projects now, they are
Speaker 10: all built on ethereum. Paypoint's new stable coin built on ethereum,
Speaker 10: These bonds being structured by Goldban, Sachs, JP, Morgan ubs.
Speaker 2: All built on Ethereum.
Speaker 10: Often in technologies, these private controlled environments look attractive at
Speaker 10: the beginning, like intranets did in the early days of
Speaker 10: the Internet, but over time it's the public, open, and
Speaker 10: decentralized platforms that win. And I think if you look
Speaker 10: at where the major institutions are building now, they're building
Speaker 10: on things like ethereum, and now investors can invest in
Speaker 10: that in an etf What are still.
Speaker 3: The limiting factors of ethereum in particular, I mean, there
Speaker 3: is the move to proof of work, to proof of state,
Speaker 3: the idea that you wouldn't have to have at lease
Speaker 3: so much energy consumption within that, But.
Speaker 4: Still there was a complaint of gas fees.
Speaker 3: Still there was a complaint that ultimately this is still
Speaker 3: pretty cumbersome when you're just trying to use it as
Speaker 3: a layperson.
Speaker 10: Yeah, there's still a lot of there's still a lot
Speaker 10: of gaps. UX needs to improve the user interface, the
Speaker 10: gas fees have come way down with the rise of
Speaker 10: layer two solutions, so that problem is at least fifty
Speaker 10: percent solved, but it needs to be one hundred percent solved.
Speaker 10: And then, of course the major unlocked. The thing that's
Speaker 10: going to cause a step function is regulatory or legislative clarity.
Speaker 10: Now I'm optimistic. We've recently seen over the past few
Speaker 10: months a number of bipartisan bills introduced by partisan letters
Speaker 10: coming out telling Gary Gensler to prove a spot bitcoin
Speaker 10: etf there's real political momentum in Washington behind it. That
Speaker 10: will be the final unlock. But we are already seeing
Speaker 10: those signs. And again i'd point to those major institutions
Speaker 10: building today.
Speaker 3: That has been a worry that the regulation is evolving
Speaker 3: slower here though and elsewhere. Do you see some of
Speaker 3: the talent shifting board Do you see people wanting to
Speaker 3: build things not in the US.
Speaker 10: Yeah, it's really unfortunate. We're seeing a lot of the
Speaker 10: attention shift to London. We're seeing a lot of it
Speaker 10: shift Singapore. The crypto environment there is blossoming in a
Speaker 10: way it's not here in the US. The US always
Speaker 10: figures out the right thing after exhausts all other possibilities.
Speaker 2: I'm confident we'll do that here.
Speaker 10: And still there's a lot of capital invested in crypto,
Speaker 10: but we are behind. I do see progress over the
Speaker 10: last few months. I'm really seeing a change in Washington.
Speaker 10: Makes me very optimistic for twenty twenty four and certainly
Speaker 10: twenty twenty five.
Speaker 3: It's an optimism around this scrypto space. Matt Hogan, thanks
Speaker 3: for coming in and talking to it with about it.
Speaker 3: Bit Wise asset Management CIO there, Matt Hogan. Meanwhile, coming up, look,
Speaker 3: we're going to be taking the pulse of the VC industry.
Speaker 3: Is there any optimism there following the FTX Tobarkle. We've
Speaker 3: got Steff to partner at the fintech focus firm Portage.
Speaker 4: That's next.
Speaker 3: Meanwhile, we are continuing to watch individual companies today. Not
Speaker 3: much enthusiasm around this particular name, Paneteer on the downside
Speaker 3: by four point six percent. But give you context, this
Speaker 3: is a company that has run up in recent days
Speaker 3: because of course they've got that big contract from.
Speaker 4: The US government.
Speaker 3: This desire by Alex carp to see more AI adoption
Speaker 3: by key governments, so managing to be selling into the
Speaker 3: US for the time being, maybe a bit of profit
Speaker 3: taking on a down day. This is Roomberg Technology on
Speaker 3: today's VC Spotlight. Pleased to say we're joined by Steph,
Speaker 3: cho partner at Portage is a global fintech focused platform
Speaker 3: investing in innovative financial technology companies, very much of the
Speaker 3: early stage. Steph, and you've deployed what three undred million
Speaker 3: are capital in the companies that you're currently analyzing. And
Speaker 3: we were just having a pretty optimistic conversation, shall we say,
Speaker 3: around crypto adoption more broadly, even in spite of SVB SBF,
Speaker 3: What is the industry feeling right now in the world
Speaker 3: of fintech and indeed putting money into these startups.
Speaker 12: Fintech has been, as the entire tech sector has been,
Speaker 12: I would say.
Speaker 4: Fairly slow through the year.
Speaker 12: But I will say the story Q two seems to
Speaker 12: have been a bit of an inflection point. If you
Speaker 12: look at the data, round sizes for the first time
Speaker 12: have gone up in Q two twenty three, gone up
Speaker 12: again in Q three Also, I would say valuations have
Speaker 12: slowly ticked up. So it might be that Q one
Speaker 12: could have been the bottom both for fintech but also
Speaker 12: for early stage startup and investing in general. So I'm
Speaker 12: definitely seeing signs of optimism in both fintech plus the
Speaker 12: broader tech ecosystem and environment.
Speaker 3: And what do you think was the catalyst for that
Speaker 3: bottoming if you are starting c valuations creep p Is
Speaker 3: it that these companies have taken some bitter pills they've
Speaker 3: rectified how their revenue and their bone rates are or
Speaker 3: is it more that we're getting more broad ideas of optimism,
Speaker 3: like exits that we started to see in the IPA market.
Speaker 1: I think it's a combination of both.
Speaker 12: So one, everybody's looking at the IPO markets very carefully.
Speaker 12: I think the story of arm and Clavio, the AI
Speaker 12: story is pretty clear. If you've got an AI story,
Speaker 12: you're going to trade up both in the public markets,
Speaker 12: but also you're going to trade at a premium in
Speaker 12: the private markets early stage and laid stage. I think
Speaker 12: the second factor is lots of companies actually delayed their raises.
Speaker 12: Everyone raised a lot of money in twenty twenty one
Speaker 12: and they delayed. And I feel like now folks have
Speaker 12: come back to market in twenty twenty three because you
Speaker 12: can't wait forever. It's estimated that unicorns will need to
Speaker 12: raise three hundred billion by the end of this year
Speaker 12: and funds, And the third factor I would say is
Speaker 12: funds are really sitting on almost four hundred billion dollars
Speaker 12: of dry powder which was raised in twenty twenty one
Speaker 12: and twenty twenty two, so other vcs are itching to really.
Speaker 4: Get deals done.
Speaker 12: So I think it's a combination of all three of
Speaker 12: those things that are driving some kind of wider optimism
Speaker 12: in the market, not only at the seed stage, which
Speaker 12: if you look at seed valuations they really didn't change
Speaker 12: all that much from twenty twenty to twenty twenty three,
Speaker 12: but it's really at Series A and onwards that we're
Speaker 12: really starting to see more deals get done and valueations
Speaker 12: start to tick up.
Speaker 4: In twenty twenty three, our.
Speaker 3: LPs excited for their VC commitments to start to get deployed,
Speaker 3: are actually we hearing that LP's and putting on a
Speaker 3: bit of.
Speaker 4: Pression to not deploy for the time being.
Speaker 12: I think LPs are definitely not putting on pressure to
Speaker 12: deploy in short time periods. In twenty twenty and twenty
Speaker 12: twenty one, we saw funds deploying their full capital allocation,
Speaker 12: which would typically have been three to four years in
Speaker 12: twelve months, sometimes sometimes less and sometimes closer to eighteen months,
Speaker 12: and so we haven't seen a push from our institutional
Speaker 12: LPs to come.
Speaker 1: Back to market.
Speaker 12: Actually it's been a little bit of the opposite, because
Speaker 12: if you are an institutional LP, that is a pension,
Speaker 12: you might be facing what's known as the denominator effect,
Speaker 12: which is you need to rebalance your portfolio.
Speaker 1: And as the public markets went.
Speaker 12: Down, we've seen the share of privates be potentially look
Speaker 12: a little bit misallocated, and so there's been a shifting
Speaker 12: from some of our LPs, and so I don't think
Speaker 12: there's been a push for VC funds to necessarily deployed.
Speaker 12: But we are deal makers at the end of the day,
Speaker 12: so I think everybody in this job is excited about
Speaker 12: getting back to doing deals.
Speaker 3: Certainly, we'll see how those deals continue to unfold stuff.
Speaker 4: It's been great speaking to you.
Speaker 3: Thank you for shining a light on the LP study,
Speaker 3: the equation as well as we're to be deploying stuff
Speaker 3: to partner at Portage there we thank I.
Speaker 4: Mean, well, look, I also managed to catch up with.
Speaker 3: Another founder but you'll know her name, Elavest CEO. Sally
Speaker 3: Krawchek of course, storied career in Wall Street, then pivoted
Speaker 3: to become a founder herself.
Speaker 4: I was over at the NASDAC and we talked about.
Speaker 3: How her company uses technology to help women build wealth
Speaker 3: beyond the financial tools traditionally built by or for men.
Speaker 13: Take a listen, Well, we were the first who said
Speaker 13: we're going to change the underlying product using technology. And
Speaker 13: to your point, we're the first to build a gender
Speaker 13: aware investing algorithm, which doesn't matter so much of your guy.
Speaker 13: But if you're a woman who earns less, your salary
Speaker 13: peak sooner, you take more career breaks, and you die later.
Speaker 13: If you assume your average, you really risk running out
Speaker 13: of money. On top of that, we use technology and
Speaker 13: learning and research to change about a zillion things about
Speaker 13: the product.
Speaker 4: For example, yeah, I give us some Yeah.
Speaker 13: So we learned, for example, that it's not that women
Speaker 13: are risk averse, and so when they get to the
Speaker 13: point of the onboarding where they say what's your risk tolerance?
Speaker 13: We found that what men will do is say that
Speaker 13: seems pretty important. I'm going to take an educated guess
Speaker 13: and continue on, and women say that seems pretty important.
Speaker 13: Because I was socialized to be perfect and men were
Speaker 13: real boys are socialized to be brave, as Rushmaster Johnny says,
Speaker 13: I'm going to leave, I'm going to figure this out,
Speaker 13: and I'm going to come back. Do you know what
Speaker 13: is more interesting than figuring out your risk tolerance everything?
Speaker 4: So therefore you don't come back. Same with your Oregon.
Speaker 13: I could go on and on.
Speaker 3: So they're just not getting past that hurdle in the
Speaker 3: Q and A when you're first signing onto.
Speaker 13: The As it turns out, the onboarding was built for men.
Speaker 13: And we said, okay, how do we give her the
Speaker 13: information that she needs or how do we solve the
Speaker 13: problem of if she doesn't know a risk tolerance, what
Speaker 13: can we do about that? And rather than just say, oh,
Speaker 13: it's lost, what we said is we'll do the hard work.
Speaker 13: Tell us everything about you, your characteristics, how old you are,
Speaker 13: what part of the country you're in, how much you're earning,
Speaker 13: what industry you're in, so we can figure out what
Speaker 13: you should earn over the course of your life, and
Speaker 13: what you want to achieve.
Speaker 3: A new artificial intelligence startup is challenging more established rivals
Speaker 3: by solving a vexing problem. Letting anyone create an image
Speaker 3: of a cat wearing a T shirt with a clever
Speaker 3: slogan that you can actually read. Now, those humorous lines
Speaker 3: are actually written by Rachel Metz, who has a great
Speaker 3: story on Ideogram today.
Speaker 4: Why is this so hard for other image generators to
Speaker 4: do in generative AI? Rachel?
Speaker 11: So, usually these types of AI image generators are trained
Speaker 11: on pairs of images and related corresponding text. Often those
Speaker 11: images either won't have text in them they or they
Speaker 11: won't be trained using the wide variety of texts that
Speaker 11: you would use if you're training a system on, say
Speaker 11: pictures of apples or pictures of cats, where you would
Speaker 11: have them from different angles, different lighting, a lot of
Speaker 11: different kinds of apples or a lot of different kinds
Speaker 11: of cats. So this company won't say exactly how they're
Speaker 11: doing it, but it does sound like they're using quite
Speaker 11: a bit of text in in their training images, which
Speaker 11: may have really helped it get a lot better at
Speaker 11: doing things like giving you pictures of a cat wearing
Speaker 11: a T shirt that has a slogan on it.
Speaker 4: The beautiful pictures go see them on their story.
Speaker 3: Ex Googlers founded Ideogram, how are they competing against mid
Speaker 3: journey or for example.
Speaker 11: They've taken a really different approach than mid Journey or
Speaker 11: Open AI or stable diffusion. There is a little bit
Speaker 11: more like a social network. At the moment the website
Speaker 11: is it's free to use. There isn't a paid service
Speaker 11: at the moment that they're planning to have one. And
Speaker 11: at the moment everything you generate is open to the public.
Speaker 11: They're hoping that that actually helps with behavior a little bit,
Speaker 11: so perhaps people will be a little bit kinder about
Speaker 11: what they're generating, not use it as not only as
Speaker 11: they might if they could do things privately.
Speaker 3: Notable as we will worry perhaps ahead of elections and
Speaker 3: indeed deep fakes.
Speaker 4: Rachel Metz Go read. Her story is.
Speaker 3: Another brilliant one about the startup world in AI. We
Speaker 3: thank her so much for it. Meanwhile, now that does it.
Speaker 3: From this edition of Bloombag Technology, Stay with Bloomberg Television
Speaker 3: because it's Bloomberg Crypto. Up next, a deep dive into
Speaker 3: the FTX trial as it starts to unfold. You will
Speaker 3: not want to miss it. And also once I forget
Speaker 3: to check out our podcast, find it on the terminal
Speaker 3: as well as online on Paul Spotify. iHeart from across
Speaker 3: the world of FTX to fintech and AI.
Speaker 4: We got it all. This is Bloomberg technology