Speaker 1: This is Bloomberg Crypto Daily Bloomberg Podcast. It's Tuesday in
Speaker 1: November and I'm Baldana Hirich in today for Stacy Marie Ishmael.
Speaker 1: Listeners of this show who followed the news know that
Speaker 1: the crypto industry erupted into chaos in recent days when
Speaker 1: there was a run on the crypto exchange f t X,
Speaker 1: which froze withdrawals and in a matter of ours, declared bankruptcy.
Speaker 1: If you are just joining us, turn up the volume
Speaker 1: for this cryptocurrency exchange, f t X filed for Chapter
Speaker 1: eleven bankruptcy following several days of enormous turmoil. The latest
Speaker 1: reporting from Reuters says SPF is seeking a nine point
Speaker 1: four billion dollar package for an f t X bailout.
Speaker 1: It started way back when last week when a tweet
Speaker 1: finance CEO Chang pangs Al said that his crypto exchange
Speaker 1: planned to sell ft x's native token f t t
Speaker 1: due to risk management issues that ended up driving the
Speaker 1: token's price down by some ninety percent. And soon after
Speaker 1: f t x as CEO Sam Bankman Freed started shopping
Speaker 1: around for a bailout and halted withdrawals on his platform.
Speaker 1: We also just thirty six hours later, got news that
Speaker 1: f t X ended up filing for bankruptcy and that
Speaker 1: SPF was resigning. Here with us today to go over
Speaker 1: everything that happened is Bloomberg reporter Katie Greifeld. Katie, thank
Speaker 1: you so much for joining me today. So, Katie, obviously
Speaker 1: this has been incredibly hard on so many people. So
Speaker 1: we have institutions that have been involved with this that
Speaker 1: are hurting. We also have a ton of retail investors
Speaker 1: who are who have lost a lot of money. So
Speaker 1: maybe just to start tell us what the hell happened?
Speaker 1: You know, it's a great question, but I think you
Speaker 1: make a great point that that's what's at stake when
Speaker 1: you think about this. Whole conversation is centered around customer funds.
Speaker 1: What happened to the customer funds where they mishandled. Those
Speaker 1: are people's investments, that's people's money. So again, I think
Speaker 1: that's an important jumping off point that that's what we're
Speaker 1: really talking about at the end of the day, just
Speaker 1: exactly we're going to lose money in terms of what
Speaker 1: the hell happened. I think we're still facing that together.
Speaker 1: But it seemed like it started as a big Twitter
Speaker 1: feud basically between c Z at Finance and SPF at
Speaker 1: fd X, and it quickly turned into I think even
Speaker 1: people in the know would tell you that they were
Speaker 1: shocked at how quickly this moved, that they didn't even
Speaker 1: know f t X was on sale, let alone that
Speaker 1: Finance would buy it. And then almost as quickly as
Speaker 1: Binance had said that they were going to basically buy
Speaker 1: FTX to help with their liquidity issue getting back to
Speaker 1: the customer funds, they pulled out. And then I mean
Speaker 1: all they deal exactly, and all of this was happening
Speaker 1: in the span of a few days, and by the
Speaker 1: end of the week, ft X had filed for Chapter
Speaker 1: eleven bankruptcy. And now it just feels like we're watching
Speaker 1: for the fallout. Where do we go from here? And
Speaker 1: even in that very quick timeline that I just laid out,
Speaker 1: there's so many details and happenings that, uh, it just
Speaker 1: felt like a house of cards when it all came
Speaker 1: down at once, basically, and just for me in talking
Speaker 1: to people, and for you as well, because you and
Speaker 1: I have covered f t X in the past. Over
Speaker 1: the last couple of years, we've been writing quite a
Speaker 1: bit about it and obviously about the crypto space, but
Speaker 1: this really had been the gold start within crypto, right.
Speaker 1: People thought of it as a very reputable place and
Speaker 1: people a lot of people thought very highly of SPF,
Speaker 1: of same Maignement Freed, and so possibly that's also one
Speaker 1: of the reasons that this has just been so much
Speaker 1: more shocking for a lot of people, right. I think
Speaker 1: that's exactly right. I mean, if you think back to
Speaker 1: what happened a few months ago with Do Kwan and
Speaker 1: Terra and Luna, for example, I mean there had been
Speaker 1: do Kwant skeptics out there, it was still shocking the
Speaker 1: scale in the magnitude, but you could go back in
Speaker 1: the timeline, go back to Twitter and find people sort
Speaker 1: of ringing the alarm bells for months as to this
Speaker 1: looks unsustainable f t X, totally different situation. Like you said,
Speaker 1: SPF was really really trusted. I mean, the man was
Speaker 1: testifying in front of Congress, mazines exactly on the cover
Speaker 1: of magazines. And I think that's the common denominator now
Speaker 1: when I talked to people, it's it's it's shocked, but
Speaker 1: it's also it feels like people are just stunned, and
Speaker 1: it feels like the magnitude of you know, how far
Speaker 1: f t X is reached is much larger. It feels
Speaker 1: like everyone had exposure to f t X some how,
Speaker 1: or to Alameda somehow, because again we're talking about an
Speaker 1: entire empire here. That SPF was running a huge empire.
Speaker 1: You know that the FTX was not only one of
Speaker 1: the biggest crypto exchanges, it was also seeking to bail
Speaker 1: out other struggling crypto firms across the industry, while Sam
Speaker 1: making Freed was actively trying to change policies in the
Speaker 1: United States. Actually, in their bankruptcy filing on Friday, something
Speaker 1: like a hundred and thirty subsidiaries or companies that are
Speaker 1: tied to the ft X empire are also named in
Speaker 1: the bankruptcy filing. But Katie, were still obviously sifting through
Speaker 1: the rubble. We might be for years to come, depending
Speaker 1: on what happens in terms of the bankruptcy and what
Speaker 1: regulators do. But Bloomberg did report over the weekend about
Speaker 1: just what a mess the books actually were at f
Speaker 1: t X. Maybe you can talk about that. Yeah, you
Speaker 1: read this story and you, I don't know, kind of
Speaker 1: get a clearer picture of why finance pulled out because
Speaker 1: uh a, look at a breakdown of the balance sheet again.
Speaker 1: The day before that, they that f t X, ultimately
Speaker 1: filed for bankruptcy, had nine billion dollars in liabilities nine
Speaker 1: hundred million dollars in liquid assets. So that's a pretty
Speaker 1: big mismatch five point five billion dollars in quote less
Speaker 1: liquid assets and three point two billion dollars in a
Speaker 1: liquid assets. This is, of course, according to sources familiar
Speaker 1: with the matter. Um the st has been all over
Speaker 1: this story too, and they broke the news that the
Speaker 1: largest asset was two point two billion dollars worth of
Speaker 1: a cryptocurrency called serum filled Donna. I had never heard
Speaker 1: of serum before I read that story. I had, but
Speaker 1: only because I used so many face serums, so the
Speaker 1: name had really like caught my eye, that is so funny.
Speaker 1: I had not my skin was serums. Yeah, my skincare
Speaker 1: routine is not as rigorous. So this was total news
Speaker 1: to me. But what it's just, I mean, what do
Speaker 1: you even say? It's shocking speechless, which is bad for
Speaker 1: a podcast, bad talking, But it's gonna make for really
Speaker 1: really interesting core case. I think, yes, bankruptcy core case.
Speaker 1: But just to go back to your point about what
Speaker 1: happened over the summer with the Tera Luna implosion, just
Speaker 1: to catch up listeners. That was a stable coin, an
Speaker 1: algorithmic stable coin that lost its peg basically and wiped out.
Speaker 1: I think it was something like sixty billion dollars in value.
Speaker 1: And I know, for me, having covered crypto for almost
Speaker 1: five years now, every time something does implode or something
Speaker 1: negative happens, when I talk to people, what they tend
Speaker 1: to tell me is, well, you know, whether it's some
Speaker 1: sort of some form of regulation. What they tell me
Speaker 1: is the regulation is good, we need regulation, or some
Speaker 1: price crash they say it's fine, we're taking some froth
Speaker 1: out of the market, or I mean, it doesn't matter.
Speaker 1: There's always some sort of positive spin where you can argue, well,
Speaker 1: it's taking out weaker players, etcetera, etcetera. This time around,
Speaker 1: I feel like the commentary, at least from people I
Speaker 1: talked to, has been much more serious, almost like gravely serious,
Speaker 1: where people are telling me that they're scared of everything
Speaker 1: that's going on. I don't know what conversations have been
Speaker 1: like for your what the Maybe you can give us
Speaker 1: a sentiment check. Yeah, I would agree with that. I
Speaker 1: mean it seems like the consensus is that this should accelerate.
Speaker 1: I mean, the US has been all over the place
Speaker 1: on crypto regulation. It's still unclear which of the letters,
Speaker 1: meaning the CFTC, the SEC who actually act has any
Speaker 1: oversight over the industry. And I mean Congress too has
Speaker 1: made noises about you know, we're looking at this, we're
Speaker 1: taking this seriously. I don't know the consensus at this point.
Speaker 1: And again, the industry, it just feels like everyone is
Speaker 1: very shell shocked at this moment. But the consensus seems
Speaker 1: to be surely this accelerates regulation in some way. What
Speaker 1: that looks like, I'm not sure, but it remains to
Speaker 1: be seen. Well, we tend to hear the word regulation
Speaker 1: thrown out, thrown around a lot, but yeah, we'll see
Speaker 1: what actually happens. Whereas we have people on one end
Speaker 1: saying maybe we'll see more regulation of these centralized exchanges,
Speaker 1: and on the other hand saying, you know, it could
Speaker 1: be much more widespread than that. Joe Wisenthal actually hit
Speaker 1: a great point newsletter. He made the point that crypto
Speaker 1: regulation it's a bit of an oxymoron. We've heard that
Speaker 1: phrase before, that regulation crypto oxymoron. But he made the
Speaker 1: point that if you think about the blockchains, they are
Speaker 1: the law. The consensus mechanism is the law of that
Speaker 1: blockchain and how the coins move around, and you compare
Speaker 1: that to actual fiat currency. They are creatures of the
Speaker 1: government of that law. So if you regulate crypto, you
Speaker 1: have two competing laws there. So again there's a lot
Speaker 1: of this is a meta conversation. I know, there's a
Speaker 1: lot of philosophical questions about can you even regulate crypto? So,
Speaker 1: just to go back to your point about the terror, unplotion,
Speaker 1: et cetera. You have actually written about this, How does
Speaker 1: this compare to past implosions? And I think actually in
Speaker 1: your story you may some comparisons even to what happened
Speaker 1: with Enron back in two Yeah, yeah, no, it it's
Speaker 1: important context to put this in past blow ups that
Speaker 1: we've seen over the past few decades. I mean a
Speaker 1: lot of people have compared this to a Lehman moment.
Speaker 1: I think it was Larry Summers, the former Treasury secretary,
Speaker 1: who said, no, this is more like Endron. But if
Speaker 1: you again, if you look at all these big scandals,
Speaker 1: they have the same basic ingredients. You have a lot
Speaker 1: of easy money coming from the governments, from the central banks.
Speaker 1: You have really hyped innovation, uh, and you tend to
Speaker 1: have some central characters. And that's what's going on here.
Speaker 1: And it's just not to blame everything on the Federal Reserve,
Speaker 1: which is really easy to do, but think about how
Speaker 1: aggressively the cycle has changed since this time last year.
Speaker 1: I mean, the FETE is on its biggest rate hiking,
Speaker 1: most aggressive rate hiking cycle that we've seen in decades.
Speaker 1: There's a lot of liquidity coming out of the system.
Speaker 1: I mean, lines go up in a bowl market. One
Speaker 1: of my favorite lines in that story was that a
Speaker 1: bowl market basically covers a lot of sins. And now
Speaker 1: you're seeing the flip side of that. The cycle is
Speaker 1: turning and the bad actors are getting exposed. Bad actors
Speaker 1: being used very broadly here. Obviously there's a lot of
Speaker 1: investigations going on which will hopefully bear fruit. But the
Speaker 1: point being that once you do have the shift in
Speaker 1: the macroeconomic backdrop, the lines stopped going up and it
Speaker 1: gets a lot harder. So should we be blaming the
Speaker 1: FED or crypt people blaming the Fed? I think crypto
Speaker 1: people don't really know who to blame at this point.
Speaker 1: I mean again, to compare it to what we saw
Speaker 1: with Tera, you had a lot of you know, people
Speaker 1: feeling vindicated, saying like I called this, you know, like
Speaker 1: the red flags were there, you just weren't looking closely enough.
Speaker 1: It feels like what's happening with f t X. It's
Speaker 1: just a very existential moment for the entire crypto industry
Speaker 1: because again you think about spfs reached the reach of
Speaker 1: the f t X empire. It had its tentacles in
Speaker 1: virtually every corner of the market. Coming up more with
Speaker 1: Katie and me on the future of digital assets after
Speaker 1: one of the toughest weeks in crypto, we'll be right back. Well,
Speaker 1: even if you didn't know what f t X was,
Speaker 1: you likely saw their logo or their branding because they
Speaker 1: what they did over the last two years during the
Speaker 1: pandemic is they did a huge sports push, right Larry
Speaker 1: David was in their s David was in their Super
Speaker 1: Bowl ads, so was Tom Brady, and so was Gasel
Speaker 1: his his now ex wife. Can I talk to you
Speaker 1: about something, Yeah, we talked about it. I got another
Speaker 1: ten years left. Not that this is big, you know.
Speaker 1: So they had celebrities going out during their advertising. They
Speaker 1: had their name on some on a sports arena, I
Speaker 1: believe the one where the Miami Heat place. They also
Speaker 1: had branding on umpire jerseys. It was everywhere. It was everywhere.
Speaker 1: So for for the average person, it's very likely that
Speaker 1: they were at least aware of the company. If not, Yeah,
Speaker 1: I had money, and that was all by design. I mean,
Speaker 1: that was f t X wanting to be the face
Speaker 1: of crypto and it worked. I mean, I don't know
Speaker 1: what your personal conversations or your weekend looked like. This
Speaker 1: was all I talked about. Against my will, I would
Speaker 1: actually will to take a break, but it's all anyone
Speaker 1: wants to talk about. It is. It's shocking. It's mainstream shocking.
Speaker 1: One one reason it's been so shocking is because crypto
Speaker 1: prices have sold off precipitously in the wake of this, Right,
Speaker 1: So maybe we can we can talk and about this
Speaker 1: a bit more and how it's also impacting retail investors
Speaker 1: who might not have had money on ft X, but
Speaker 1: they've they owned cryptocurrencies in some other way. And what
Speaker 1: we saw is the ft t token, which is the
Speaker 1: utility token from f t X, dropped something like and
Speaker 1: then you had this huge sell off in bitcoin and ether,
Speaker 1: and then some of the sort of like f t
Speaker 1: X adjacent tokens like Salona Salona token. Really it's selling
Speaker 1: off precipitously. Yeah, I don't know. I want to turn
Speaker 1: this question. Do you actually Bitcoin obviously has sold off
Speaker 1: a bunch. It's down well over sixty two, just as
Speaker 1: tremendous draw down. And again you think about all the
Speaker 1: retail players who were piling in this time last year.
Speaker 1: It's a very painful story. But at the same time,
Speaker 1: I'm kind of surprised that Bitcoin isn't even lower. Like
Speaker 1: I made this point in this little email distribution list
Speaker 1: I sent out on which you would you refuse to
Speaker 1: add me too. By the way, it's just so listeners
Speaker 1: are aware, I've never seen this, But I made the
Speaker 1: point that if you had told me that f t
Speaker 1: X would file for bankruptcy, I would not have believed you.
Speaker 1: Like if you had told me a week or two
Speaker 1: ago that it would come in the next five days,
Speaker 1: I would be like, Okay, cool dream. And then if
Speaker 1: you had told me that bitcoin would still be above
Speaker 1: ten thousand dollars after that happened, I'd be like, no
Speaker 1: way on earth this is a systemic player. So Bitcoin
Speaker 1: has dropped a lot, and its dropped off a lot
Speaker 1: of this news, but not as much as maybe I
Speaker 1: would have expected. Maybe I'm naive there, but it seems
Speaker 1: like there is some resilience to some Yeah, so it's
Speaker 1: scary for people who are in the market, who are
Speaker 1: very closely paying attention to the market and to the charts,
Speaker 1: to see it dropped below certain key levels like the
Speaker 1: low reached earlier this year, which we broke through, and
Speaker 1: then even the round numbers like seventeen thousand per coin,
Speaker 1: we broke through that. Then at one point we broke
Speaker 1: through sixteen thousand. So the cell of has been you know,
Speaker 1: it was over twenty at one point during last week
Speaker 1: when everything was unfolding and happening. But we've had huge
Speaker 1: sell offs in some other ones, I mean just huge,
Speaker 1: you know, more more than some of these alternative or
Speaker 1: all coins. So I think a lot of the selling
Speaker 1: also was happening there, and I think it makes the
Speaker 1: point that bitcoin and the Bitcoin blockchain, like they really
Speaker 1: are the o G s, you know, that is the
Speaker 1: safe haven asset of the cryptocurrency safe haven. But obviously
Speaker 1: you've still lost a lot of money, but you've lost
Speaker 1: less money than if you were in Salana, for example,
Speaker 1: which was very very hyped as the Ethereum killer Ethereum
Speaker 1: being the second biggest blockchain, but again thinking about just
Speaker 1: second biggest token exactly, you think about the vast reach
Speaker 1: of SPF, of fd X, of Alameda. They were such
Speaker 1: huge advocates of Salona, such big backers that that token
Speaker 1: has taken the brunt of the selling here. Yeah, for sure.
Speaker 1: So maybe just to wrap things up, we can talk
Speaker 1: a little bit about some of the outstanding questions. What
Speaker 1: are people telling you they'd like to be here about.
Speaker 1: I've heard it seems like everyone would like to know
Speaker 1: the fallout, like where to look for the next shoe
Speaker 1: to drop, And there's a lot of potentials I've heard
Speaker 1: to take a look at the lenders, for example, because
Speaker 1: again Alameda SPFS Trading Arm was a big borrower, so
Speaker 1: I think that will be important. Block five, for example,
Speaker 1: has you know, halted withdrawals. I believe there's a few
Speaker 1: other lenders out there, and the lending the crypto lendic
Speaker 1: space was already shaky after what happened with Terra and
Speaker 1: then the summer three hours Capital, so there's that. I mean,
Speaker 1: it's been interesting. We heard from Galaxy, for example, they
Speaker 1: had exposure in the tens of millions. I think that
Speaker 1: is going to be sort of the drip feed of
Speaker 1: information to watch is who else is exactly how how
Speaker 1: how widespread is the fallout? But again, I've been asking
Speaker 1: people exactly that question, what is the next shoe to drop?
Speaker 1: And it's a long list. I'm sure by the time
Speaker 1: this podcast runs will actually have so much more information
Speaker 1: because the news, the headlines, they've just been coming out incessantly.
Speaker 1: It's like a five or ten year cycle compressed into
Speaker 1: three days. Yeah. Well, Katie, it's been a joy as
Speaker 1: always to talk to you, so thank you so much
Speaker 1: for letting me chat with you today. Let's do it
Speaker 1: again soon. I hope we can do it tomorrow again, beautiful.
Speaker 1: You can find more of our reporting on the Bloomberg
Speaker 1: Terminal and on Bloomberg dot com, and for more, be
Speaker 1: sure to check out our twice weekly newsletter, Bloomberg Crypto.
Speaker 1: This is Bloomberg Crypto, a daily podcast from Bloomberg and
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Speaker 1: The supervising producer of Bloomberg Crypto is Vicky very Galina.
Speaker 1: Our senior producer is Janet Babin. Our producers are Mohammed
Speaker 1: Faruk and Sharon Barriro. Our associate producers are Ty Butler
Speaker 1: and Moses on Them. Desta wonder At is our engineer.
Speaker 1: Original music by Leo Sidron. I'm Stacy Marie Shmal. We'll
Speaker 1: be back tomorrow.