WEBVTT - This Week in Crypto: BlockFi Bankruptcy

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<v Speaker 1>This is Bloomberg Crypto Daily Bloomberg I heard podcast and

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<v Speaker 1>I'm Philip Lawyer Kransler, senior crypto editor for Bloomberg News.

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<v Speaker 1>In Today for Stacy Marie Ishmael, It's Friday, December two. Well,

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<v Speaker 1>the apples are falling from the crypto tree one by one.

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<v Speaker 1>Contagion is still the name of the game, and this

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<v Speaker 1>week it was Block five filing for bankruptcy protection. Also,

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<v Speaker 1>crypto hedge funds are losing faith in centralized exchanges. Here

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<v Speaker 1>to help me break down the news is Bloomberg Senior

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<v Speaker 1>crypto editor Anna Arera. The question is if something happens

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<v Speaker 1>to Binance, and I'm not saying that we have indications

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<v Speaker 1>that it will, but who rescues Binance then? And you know,

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<v Speaker 1>you perhaps need money from outside the industry as well,

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<v Speaker 1>not just inside. And crypto reporter tens ill act are

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<v Speaker 1>the current regulation of crypto is partly shaped by misconceptions,

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<v Speaker 1>the belief that space must be given to innovation all costs.

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<v Speaker 1>Crypto contagion is showing very few signs of slowing down. Monday,

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<v Speaker 1>it was Block vice turn to file for bankruptcy, filing

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<v Speaker 1>for Chapter eleven bankruptcy protection in New Jersey, and are

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<v Speaker 1>you help cover that story a little bit? Um, can

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<v Speaker 1>you tell us a little bit about what happened and

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<v Speaker 1>how significant this is? Yeah, I mean it's it's a

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<v Speaker 1>big deal. It was not totally unexpected because they were

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<v Speaker 1>having trouble earlier in the crypto winter being a lender.

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<v Speaker 1>Obviously they suffered from the um falling prices and they

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<v Speaker 1>were rescued by FTX, and so obviously now we know

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<v Speaker 1>FDx itself needed rescuing, so clearly, um they had to

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<v Speaker 1>sort of file for bankruptcy too because the rescuer went down. Um,

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<v Speaker 1>it wasn't necessarily a massive shock to the sector. We

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<v Speaker 1>don't know the extent of contagion because, as with fd X,

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<v Speaker 1>the names of the creditors have been redacted, so we

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<v Speaker 1>don't know yet. But people were sort of expecting it

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<v Speaker 1>more than perhaps obviously for sure, more than they were

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<v Speaker 1>expecting the FTX collapse. Um. It does obviously leave the

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<v Speaker 1>door open to more contagient because who knows who their

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<v Speaker 1>counterparties are, and if perhaps they're also counterparties to ft X.

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<v Speaker 1>So I think people are sort of expecting perhaps more

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<v Speaker 1>shoes to drop. Um. But we'll have to follow what's

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<v Speaker 1>going on there. Yeah, and to your point about UM,

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<v Speaker 1>you know, having names redacted for major creditor that creditors

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<v Speaker 1>that are also appliance. I think we had at least

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<v Speaker 1>six or seven names with north of ten million dollars

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<v Speaker 1>or claims on them, So it's fair to even without

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<v Speaker 1>knowing who the names are, it's fair to assume presumably

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<v Speaker 1>that several outfits are sitting on rather large losses out

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<v Speaker 1>there stemming from this potentially. Yes, yeah, I mean we

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<v Speaker 1>saw the list of creditors without names had like big

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<v Speaker 1>big sums next to it, so it will be someone

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<v Speaker 1>maybe not necessarily a known crypto only firm UM that

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<v Speaker 1>has a huge loss because of Block five. Actually, curiously,

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<v Speaker 1>one of the entities that was mentioned and wasn't redacted

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<v Speaker 1>was the sec UM and Block fights at thirty million dollars,

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<v Speaker 1>which is part of a settlement UM that they were

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<v Speaker 1>paying UM because of an issue they had earlier in

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<v Speaker 1>the year, which is somewhat funny, but they're not really

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<v Speaker 1>that funny UM. But yeah, it's curious. I guess it's

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<v Speaker 1>like part of the crypto world that someone going bankrupt

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<v Speaker 1>owns owes the regulator millions of dollars basically, sec get

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<v Speaker 1>in line. You alluded to the fact this wasn't entirely

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<v Speaker 1>a bombshell surprise, and we've actually seen crypto markets fairly

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<v Speaker 1>stable throughout the week. We got bitcoin trading I believe,

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<v Speaker 1>just below seventeen thousand right now. Um, but there are

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<v Speaker 1>a wild range of forecasts and predictions out there right now.

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<v Speaker 1>Pass What can you tell me about that? What? What?

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<v Speaker 1>What have we seen in the last week? Um? Yeah, sure,

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<v Speaker 1>So you know, it's pretty surprising that it's the bitcoins

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<v Speaker 1>reached seventeen thousands, it's the highest level in two weeks,

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<v Speaker 1>and other also has climbed up four as well. Um,

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<v Speaker 1>the predictions out in the market right now. So we're

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<v Speaker 1>hearing Mark Mobius, who's the co founder of morbius Um

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<v Speaker 1>cups of Partners. He sees the next target for bitcoin

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<v Speaker 1>being ten thousand dollars um. So, although he did say

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<v Speaker 1>he won't be investing his own cash of client money

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<v Speaker 1>and digital assets as it's too dangerous, and he also

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<v Speaker 1>went on to say crypto is he to stay as

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<v Speaker 1>there are several investors who still have faith in it.

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<v Speaker 1>So messages from Mobius um. There was also a Wall

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<v Speaker 1>Street Journal column up by Andique Kessler, who says crypto's

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<v Speaker 1>final price could be zero, which states that no st

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<v Speaker 1>lender would extend credit against assets lacking any underlying collateral.

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<v Speaker 1>He also went on to compare the technology and debt

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<v Speaker 1>to red bull and milk, saying that they don't mix,

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<v Speaker 1>so you're seeing mixed messages. And then ECB also detailed

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<v Speaker 1>it stands on bitcoin um market in general through a

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<v Speaker 1>blog post, saying, Um, the current regulation of crypto is

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<v Speaker 1>partly shaped by misconceptions, the belief that space must be

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<v Speaker 1>given to innovation at our costs. So, I mean, the

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<v Speaker 1>post in general was quite negative about crypto. So, I mean,

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<v Speaker 1>there's not a lot of faith in the market right now.

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<v Speaker 1>But who knows? What are the bulls countering with? Anna?

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<v Speaker 1>One thing that we see quite a lot is, you know,

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<v Speaker 1>people are still building the block change operating, the de

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<v Speaker 1>FI protocols are still running. What are we hearing from

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<v Speaker 1>the bulls right now? Um? Sort of the crypto proponents

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<v Speaker 1>and you can separate the Bitcoin maxis from the rest

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<v Speaker 1>or in general, sort of people that believe in digital

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<v Speaker 1>assets say and point to the fact that actually f

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<v Speaker 1>t X isn't bitcoin, it's a centralized entity, and it's

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<v Speaker 1>sort of the opposite of what you would want UM

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<v Speaker 1>crypto for UM, and it just again reinforces the idea

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<v Speaker 1>that you need decentralized money because things like FTX happen

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<v Speaker 1>UM and so that you know there's still value in

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<v Speaker 1>digital assets and in bitcoins specifically, because it's not it's

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<v Speaker 1>not what collapsed and the networks still running and and

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<v Speaker 1>you know it wasn't a crash and it wasn't like

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<v Speaker 1>bitcoin filing for bankruptcy if you will, is fd X.

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<v Speaker 1>Of course, like one argument you could have to that

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<v Speaker 1>and is that you know, normal people can't really disting

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<v Speaker 1>wish between perhaps f t X and UM bitcoin or

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<v Speaker 1>the protocol they might have bought bitcoing through ft X,

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<v Speaker 1>and so maybe not for everyone. The distinction isn't very

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<v Speaker 1>clear because many of these firms that are centralized entities

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<v Speaker 1>became the representatives for for the asset class. If you

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<v Speaker 1>think about it, especially how much money they spent on

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<v Speaker 1>advertising over the past year. You know, I was watching

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<v Speaker 1>the World Cup last night, you still see crypto dot

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<v Speaker 1>Com advertised UM near the players. So it will be

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<v Speaker 1>clear for people in crypto, but it might be too subtle.

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<v Speaker 1>Maybe for for for some you know, tourist investors as

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<v Speaker 1>they like to like to call them. But we'll see. Like, certainly,

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<v Speaker 1>you know, it is quite um surprising that bitcoin has

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<v Speaker 1>held this much. You know, maybe you would have asked someone,

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<v Speaker 1>even a crypto believer, a few weeks ago, what would

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<v Speaker 1>happen to bitcoin? Surprised if ft X collapse in the

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<v Speaker 1>space of a week, and many of them, even bitcoin believers,

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<v Speaker 1>would have thought that it would have fallen beyond what

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<v Speaker 1>we saw it go down to. Yeah, I'm surprised it's

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<v Speaker 1>not lower, it didn't crush further down to like anyway,

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<v Speaker 1>that's just my opinion. There is a little bit of

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<v Speaker 1>unusual resilience here. Maybe um, maybe the hoddlers are finally

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<v Speaker 1>standing their ground. I do want to talk about another

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<v Speaker 1>type of trader that we just covered in a really

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<v Speaker 1>nice story that Anna you worked on the hedge fund

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<v Speaker 1>crowd or should I say the crypto hedge fund crowd

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<v Speaker 1>that are following the ft X debacle kind of losing

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<v Speaker 1>fate in the notion of the centralized crypto exchanged as

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<v Speaker 1>it stands today, and I can you tell us a

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<v Speaker 1>little bit more about that. Yeah, So obviously one of

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<v Speaker 1>the biggest groups that were hurt during FTX we were

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<v Speaker 1>pro traders and hedge funds and market makers. Because FTX

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<v Speaker 1>was built by a trader and by traders. One of

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<v Speaker 1>the original slogan was built by traders for traders, I believe,

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<v Speaker 1>So it was hugely popular with professional investors. It was

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<v Speaker 1>seeing sort of as the gold standard or like it was,

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<v Speaker 1>you know, really great for for professional trading. It had

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<v Speaker 1>got lots of leverage and had all these derivatives. It's

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<v Speaker 1>very attractive. So clearly when it collapsed, it caught many people,

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<v Speaker 1>even like pro um o G you know crypto funds,

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<v Speaker 1>UM caught them by surprise. And so if some of

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<v Speaker 1>them have had big losses, I mean obviously they ranged.

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<v Speaker 1>One fund we heard had to close. There might be

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<v Speaker 1>more we haven't heard of, but many had a little

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<v Speaker 1>bit of money on there for sure, because you needed

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<v Speaker 1>it to trade UM. And another thing of crypto platforms

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<v Speaker 1>is that it's it's not like Wall Street where you

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<v Speaker 1>have a trading platform, then you have a custodian clearinghouse

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<v Speaker 1>and UM a prime broker. A lot of that happens

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<v Speaker 1>on exchange, and so you also need to post your

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<v Speaker 1>collateral and exchange if you want to margin trade there,

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<v Speaker 1>and clearly, if then the exchange goes down, you're not

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<v Speaker 1>only losing your trading capital, you're losing what you're what

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<v Speaker 1>you're moving on exchange, but you're losing your collateral too,

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<v Speaker 1>and that's a big leap of faith now right to

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<v Speaker 1>go on another exchange. So we're hearing or you know

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<v Speaker 1>our report, I was hearing about sort of some some

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<v Speaker 1>funds that are a bit wary now and they don't

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<v Speaker 1>want to post their collateral anymore. So they're trying to

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<v Speaker 1>push for separation of powers, which would then make the

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<v Speaker 1>market look a bit more like Wall Street, which which

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<v Speaker 1>is of course ironic because the whole point was to

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<v Speaker 1>make it not look like Wall Street. And this is

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<v Speaker 1>the theme that's actually been cropping up quite repeatedly in

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<v Speaker 1>the last couple of weeks. They're post FTX. Is this

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<v Speaker 1>idea of the crypto exchange, or that, i should say,

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<v Speaker 1>the centralized crypto exchange. It's kind of a sort of

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<v Speaker 1>a weird animal which does multiple Wall Street functions in

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<v Speaker 1>in in one organization wraps them all together. It's sort

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<v Speaker 1>of as you're saying, it's it's there's a little bit

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<v Speaker 1>of an irony in there that the industry that was

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<v Speaker 1>supposed to be the inverse of Wall Street might actually

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<v Speaker 1>become more like Wall Street as a result of this.

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<v Speaker 1>What are your thoughts around that? Yeah, And I guess

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<v Speaker 1>it's interesting because perhaps it just shows how it is

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<v Speaker 1>just following the evolution and some of the mistakes that

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<v Speaker 1>happened on Wall Street because obviously, like some of the

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<v Speaker 1>separations of powers on Wall Street and market structure there

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<v Speaker 1>were in forced after the financial crisis of two thousand

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<v Speaker 1>and eight where people got hurt and where you know,

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<v Speaker 1>the rules came and made off as well, like clear

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<v Speaker 1>segregation of client assets UM, moving more stuff on you know,

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<v Speaker 1>murky stuff on transparent platforms UM, and making sure that

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<v Speaker 1>everything was separate because that reduces conflicts of interest. So

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<v Speaker 1>in a way, rather than I guess it's repeating, it's

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<v Speaker 1>replicated Wall Street and also the mistakes of Wall Street,

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<v Speaker 1>which is really which is really interesting. We'll be right

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<v Speaker 1>back with more of the week's top crypto stories with

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<v Speaker 1>Anna Arera and Tanzille Actor. It wouldn't be a full

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<v Speaker 1>crypt episode without talking about UM, our favorite crypto exchange

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<v Speaker 1>finance UM. They were in the New Striking a deal

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<v Speaker 1>in Japan, tas what happened there. Um, Yes, so binances

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<v Speaker 1>re entering Japan, which is really interesting. UM. In the

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<v Speaker 1>early days, Japan was a hope for crypto um as

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<v Speaker 1>it was home for mark Gox. So I'm not sure

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<v Speaker 1>if you know. I'm sure people have heard the Mount

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<v Speaker 1>Cox and how there was a massive hack which involved

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<v Speaker 1>four hundred and sixty million at the time going missing.

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<v Speaker 1>So Japan itself has been very like careful when it

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<v Speaker 1>comes to UM regulating crypto. So obviously finance re entering

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<v Speaker 1>Japan I think is a big deal because Japan is

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<v Speaker 1>super careful when it comes to regulations around crypto UM.

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<v Speaker 1>They've also been one of the markets that even that

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<v Speaker 1>has been one of the older adopters I think in

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<v Speaker 1>Asia of krypto, and obviously, as Stars was saying they

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<v Speaker 1>were burned by Mount Cox or early on, they tightened

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<v Speaker 1>regulation a bit more. So it's interesting now and that

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<v Speaker 1>led some players to leave, and I guess now with

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<v Speaker 1>the regulation that's in place, it's it's leading players to

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<v Speaker 1>come back, which is I guess some of the point

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<v Speaker 1>that the point that some crypto firms make, they say, well,

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<v Speaker 1>the lack of regulation makes This makes it unclear, and

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<v Speaker 1>so it's pushing us to go offshore somewhere else. If

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<v Speaker 1>we had clear regulation, at least we know what rules

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<v Speaker 1>to play by UM, which is a point, But then

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<v Speaker 1>I guess the counterpoint is, you know, you could just

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<v Speaker 1>follow the regulation that exists on it, I would say

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<v Speaker 1>other assets. That's quite a bullish move on Japan's front

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<v Speaker 1>when it comes to crypto, like letting Binance one of

0:13:28.520 --> 0:13:31.560
<v Speaker 1>the biggest exchanges to list out there. I don't know,

0:13:31.600 --> 0:13:33.880
<v Speaker 1>that's my point of view. They're not. I don't know

0:13:33.880 --> 0:13:38.360
<v Speaker 1>if the term is listing you think they are. They

0:13:38.440 --> 0:13:42.640
<v Speaker 1>are gaining a foothold in Japan, I think we can say.

0:13:44.120 --> 0:13:47.600
<v Speaker 1>And you know, on the topic of viinance, they are

0:13:47.640 --> 0:13:51.760
<v Speaker 1>obviously the eight hundred pound guerrilla in the industry right now,

0:13:51.840 --> 0:13:55.520
<v Speaker 1>especially after FT excess demise, and they have been kind

0:13:55.520 --> 0:13:58.920
<v Speaker 1>of on the trying to get on the front foot

0:13:58.920 --> 0:14:01.720
<v Speaker 1>a little bit in the last two weeks UM and

0:14:01.800 --> 0:14:05.840
<v Speaker 1>one of their initiatives and has been this industry recovery

0:14:05.840 --> 0:14:09.079
<v Speaker 1>initiative what do you want to call it? A rescue

0:14:09.120 --> 0:14:13.480
<v Speaker 1>fund for promising but cash trapped crypto startups CC. You've

0:14:13.480 --> 0:14:16.280
<v Speaker 1>talked about launching a Crypto Recovery Fund. Where are you

0:14:16.320 --> 0:14:21.320
<v Speaker 1>on that? You've talked about interest being quite substantial. Who's interested? Um,

0:14:21.360 --> 0:14:23.800
<v Speaker 1>there's being back and forth on how to structure that.

0:14:24.240 --> 0:14:26.280
<v Speaker 1>Do we make it at a loose fund or do

0:14:26.320 --> 0:14:28.240
<v Speaker 1>we make it that actual fund fund. I think we're

0:14:28.280 --> 0:14:31.720
<v Speaker 1>kind of going with a loose approach where different industry

0:14:31.720 --> 0:14:35.760
<v Speaker 1>players will just contribute as they wish. So what have

0:14:35.880 --> 0:14:40.080
<v Speaker 1>we seen there and what might their motivations be behind

0:14:40.880 --> 0:14:44.000
<v Speaker 1>these efforts? I guess maybe part of it is also

0:14:44.080 --> 0:14:48.480
<v Speaker 1>for morale to show that there's still money and um,

0:14:48.520 --> 0:14:51.280
<v Speaker 1>you know interest in crypt obviously, like a crypto firm

0:14:51.320 --> 0:14:53.720
<v Speaker 1>would have interesting crypto, but just to show that there's

0:14:53.720 --> 0:14:57.360
<v Speaker 1>still some life here. UM. It was interesting that they

0:14:57.480 --> 0:15:00.640
<v Speaker 1>said they have around a billion, the action fund will

0:15:00.640 --> 0:15:02.520
<v Speaker 1>be around a billion, and they had other firms like

0:15:02.600 --> 0:15:05.560
<v Speaker 1>notably some market makers committing money too, but like the

0:15:05.600 --> 0:15:10.720
<v Speaker 1>Lion's share was from finance um, which you know is curious,

0:15:10.760 --> 0:15:13.040
<v Speaker 1>but as as well, you know, you're sort of seeing

0:15:13.080 --> 0:15:16.520
<v Speaker 1>parallels with the early SPF days, the SPF of summer

0:15:16.560 --> 0:15:19.200
<v Speaker 1>when he was coming in and having to rescue. So

0:15:19.560 --> 0:15:22.000
<v Speaker 1>you know, the question is if something happens to Binance

0:15:22.040 --> 0:15:24.640
<v Speaker 1>and I'm not saying that we have indications that it will,

0:15:24.680 --> 0:15:27.800
<v Speaker 1>but who rescues Binance then? And you know, you perhaps

0:15:27.880 --> 0:15:30.880
<v Speaker 1>need money from outside the industry as well, not just inside.

0:15:31.200 --> 0:15:34.040
<v Speaker 1>But it's definitely an interesting thing to to watch and

0:15:34.080 --> 0:15:36.200
<v Speaker 1>see what they decided to to invest in. I think

0:15:36.560 --> 0:15:38.640
<v Speaker 1>we had Ces on TV last week and he was

0:15:39.280 --> 0:15:43.240
<v Speaker 1>discussing how they're looking at another Voyager bid. They're going

0:15:43.280 --> 0:15:46.840
<v Speaker 1>to look at FTX assets as well, see what's what's

0:15:46.920 --> 0:15:49.120
<v Speaker 1>viable there, and I think they said they were in

0:15:49.200 --> 0:15:53.880
<v Speaker 1>talks with Genesis too. So basically to conclude the session,

0:15:54.160 --> 0:15:58.520
<v Speaker 1>watch c Z and Binance and let us see what

0:15:58.520 --> 0:16:01.160
<v Speaker 1>happens in the next few weeks. Thank you Anna, and

0:16:01.200 --> 0:16:03.960
<v Speaker 1>thank you tan Sale. You can find more of Anna

0:16:04.040 --> 0:16:07.880
<v Speaker 1>Arera and Tansale actors reporting on the Bloomberg Terminal and

0:16:07.920 --> 0:16:10.960
<v Speaker 1>on Bloomberg dot com. For more, be sure to check

0:16:11.000 --> 0:16:20.920
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0:16:41.200 --> 0:16:45.200
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<v Speaker 1>Marie Schml. We'll be back tomorrow