WEBVTT - The SEC Probably Thinks This Is A Security

0:00:02.560 --> 0:00:06.360
<v Speaker 1>I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News,

0:00:06.760 --> 0:00:10.400
<v Speaker 1>and this is Bloomberg Crypto at Daily Bloomberg. I heard podcast.

0:00:10.760 --> 0:00:24.680
<v Speaker 1>It's Tuesday, August second. One of the most interesting conversations

0:00:24.720 --> 0:00:27.680
<v Speaker 1>in crypto right now is all about definitions and what

0:00:27.720 --> 0:00:31.479
<v Speaker 1>I mean by that is is crypto security, what's the

0:00:31.520 --> 0:00:35.000
<v Speaker 1>security and what does that mean in practice? We are

0:00:35.280 --> 0:00:37.880
<v Speaker 1>once again very fortunate to be joined by Bloomberg opinion

0:00:37.920 --> 0:00:40.280
<v Speaker 1>columnist Matt Levine. I think that like the idea of

0:00:40.280 --> 0:00:42.040
<v Speaker 1>like having a safety and Sina's regulator for like a

0:00:42.080 --> 0:00:45.240
<v Speaker 1>crypto exchange, this feels many years away. Who is, or

0:00:45.280 --> 0:00:48.920
<v Speaker 1>at least was, a practicing lawyer and someone who has

0:00:49.000 --> 0:00:54.240
<v Speaker 1>written really extensively about security, securities, law, insider trading, all

0:00:54.360 --> 0:00:57.400
<v Speaker 1>things that are very much topical in crypto right now.

0:00:57.840 --> 0:01:01.040
<v Speaker 1>Matt also interviewed Sam Bankman Free at the recent Bloomberg

0:01:01.040 --> 0:01:04.120
<v Speaker 1>Crypto suwhere in New York and SPF as he's known,

0:01:04.560 --> 0:01:10.000
<v Speaker 1>made some very interesting remarks about regulation, clarity, collateral predictability,

0:01:10.240 --> 0:01:13.640
<v Speaker 1>profitability with sort of a dirty word for a number

0:01:13.640 --> 0:01:16.479
<v Speaker 1>of years, and it is returned to investor parlance. Over

0:01:16.520 --> 0:01:18.560
<v Speaker 1>the course of this podcast, will play you some highlights

0:01:18.560 --> 0:01:25.600
<v Speaker 1>from Matt's conversation with Sam bankmun Freed. Matt, welcome back

0:01:25.600 --> 0:01:27.679
<v Speaker 1>to the podcast. Thanks for having me. I want to

0:01:27.680 --> 0:01:30.680
<v Speaker 1>talk about something right now that does feel novel in

0:01:30.720 --> 0:01:33.120
<v Speaker 1>the crypto context, which is people seem to actually be

0:01:33.160 --> 0:01:38.960
<v Speaker 1>getting regulated at the moment. Do you think let's talk

0:01:38.959 --> 0:01:44.000
<v Speaker 1>about it being reported about people considering regulating them one day? Um,

0:01:44.040 --> 0:01:47.680
<v Speaker 1>I don't think that people are getting regulated per se. Well,

0:01:47.680 --> 0:01:52.920
<v Speaker 1>they're getting arrested, yes, sure, they're getting arrested for insider trading.

0:01:55.040 --> 0:01:59.000
<v Speaker 1>Coin Base is facing a US investigation on cryptocurrency listings.

0:01:59.200 --> 0:02:03.120
<v Speaker 1>Is this connect did to the insider trading investigation that

0:02:03.200 --> 0:02:06.360
<v Speaker 1>was brought against a former coin based manage? Did any

0:02:06.400 --> 0:02:10.720
<v Speaker 1>employees inappropriately trade ahead of the announcement? Here in coin Base,

0:02:10.800 --> 0:02:13.600
<v Speaker 1>by the way, says it did nothing wrong, But of

0:02:13.639 --> 0:02:16.840
<v Speaker 1>course we have three sources telling Bloomberg there was an

0:02:16.840 --> 0:02:20.840
<v Speaker 1>ex employee of coin base who got arrested on allegations

0:02:20.880 --> 0:02:27.080
<v Speaker 1>that he was insider trading nine crypto tokens knowing that

0:02:27.160 --> 0:02:29.960
<v Speaker 1>they would be listed and kind of like that their

0:02:29.960 --> 0:02:32.200
<v Speaker 1>prices would go up once they got listed on coin Base.

0:02:33.000 --> 0:02:35.880
<v Speaker 1>The weird thing is for the sec to bring this

0:02:36.000 --> 0:02:38.880
<v Speaker 1>action against this employee, they would have to have defined

0:02:39.520 --> 0:02:43.200
<v Speaker 1>those crypto tokens and securities for the purposes of their jurisdiction.

0:02:43.280 --> 0:02:44.959
<v Speaker 1>And that seems to be the thing that has absolutely

0:02:45.040 --> 0:02:47.520
<v Speaker 1>freaked out a whole bunch of crypto lawyers and CEOs

0:02:47.600 --> 0:02:50.160
<v Speaker 1>this week. Crypto lawyers are freaking out. I don't understand

0:02:50.160 --> 0:02:52.600
<v Speaker 1>crypto lawyers, man, I just don't understand it. Like this

0:02:52.680 --> 0:02:56.760
<v Speaker 1>is a years long thing. To me. The SEC, I think,

0:02:56.800 --> 0:03:00.120
<v Speaker 1>has always thought that almost all crypto is securities. I

0:03:00.120 --> 0:03:02.360
<v Speaker 1>think they think that bitcoin is not a security. I

0:03:02.400 --> 0:03:05.160
<v Speaker 1>think they have accepted that ethereum is not a security

0:03:05.480 --> 0:03:09.600
<v Speaker 1>for sort of like historical we forgot about it reasons.

0:03:10.000 --> 0:03:11.840
<v Speaker 1>And I think like if you came to them today

0:03:11.840 --> 0:03:14.280
<v Speaker 1>with ethereum, they'd be like, that's a security um. But

0:03:14.320 --> 0:03:16.080
<v Speaker 1>I think almost everything else they think is a security.

0:03:16.080 --> 0:03:17.280
<v Speaker 1>And I think that, like you look at some of

0:03:17.320 --> 0:03:19.080
<v Speaker 1>the projects in the in the coin base case, like

0:03:19.520 --> 0:03:22.920
<v Speaker 1>these are companies that are raising money by offering a

0:03:22.960 --> 0:03:25.520
<v Speaker 1>share of their future profits in order to build a business.

0:03:25.600 --> 0:03:28.120
<v Speaker 1>Like it's just so clear that their equity security. It's

0:03:28.160 --> 0:03:31.520
<v Speaker 1>so clear, and these crypto and like and and I

0:03:31.520 --> 0:03:34.639
<v Speaker 1>don't I don't understand like the sort of legal analysis

0:03:34.639 --> 0:03:36.800
<v Speaker 1>of crypto, because like it is the case that big

0:03:36.880 --> 0:03:39.320
<v Speaker 1>law firms are giving big venture capitalists and coin base

0:03:39.440 --> 0:03:41.880
<v Speaker 1>is a public company, get the advice that like lots

0:03:41.920 --> 0:03:44.400
<v Speaker 1>of these companies that are raising money by selling equity

0:03:44.400 --> 0:03:46.320
<v Speaker 1>securities are not selling securities, and so you can list

0:03:46.360 --> 0:03:49.480
<v Speaker 1>them as as like commodity tokens on your exchange, and

0:03:49.520 --> 0:03:51.600
<v Speaker 1>if you're a venture capitalist, you can buy them and

0:03:51.640 --> 0:03:54.600
<v Speaker 1>then immediately blow them out to retail without being an

0:03:54.680 --> 0:03:56.640
<v Speaker 1>underwrit of security. And I think if you tie to

0:03:56.680 --> 0:03:59.760
<v Speaker 1>anyone at the SEC, they're like, that's nuts, man, that's

0:03:59.840 --> 0:04:02.000
<v Speaker 1>not And like they thought that forever, and they've said

0:04:02.040 --> 0:04:04.640
<v Speaker 1>it publicly forever, Like I think there's nuanced that, and

0:04:04.680 --> 0:04:06.760
<v Speaker 1>there have been there have been SEC speeches were like

0:04:06.800 --> 0:04:08.720
<v Speaker 1>there's a path to like a utility token that is

0:04:08.760 --> 0:04:11.000
<v Speaker 1>not a security. But I think like in general, the

0:04:11.120 --> 0:04:14.480
<v Speaker 1>sort of posture of the Trump SEC that J. Clayton

0:04:14.560 --> 0:04:17.520
<v Speaker 1>SEC was all these things are securities. And they brought

0:04:17.560 --> 0:04:19.800
<v Speaker 1>a lot of enforcement actions against They used to be

0:04:19.800 --> 0:04:22.680
<v Speaker 1>called I C O s. Right initially it was just

0:04:22.720 --> 0:04:24.919
<v Speaker 1>like like the term that that fell out out of

0:04:25.040 --> 0:04:27.760
<v Speaker 1>favor because like they kept getting enforcement actions for them,

0:04:27.800 --> 0:04:30.360
<v Speaker 1>and the Gary Gainsler SEC I think has like Gary

0:04:30.400 --> 0:04:33.240
<v Speaker 1>Ginsler has said publicly all of these things are securities,

0:04:33.440 --> 0:04:35.720
<v Speaker 1>and the Clayton SEC was right about all of it.

0:04:35.920 --> 0:04:37.800
<v Speaker 1>But they haven't brought a lot of enforcement cases. And

0:04:37.839 --> 0:04:39.880
<v Speaker 1>so there's been this sort of acceptance that you can

0:04:39.960 --> 0:04:42.080
<v Speaker 1>kind of do this stuff where you are issuing like

0:04:42.120 --> 0:04:45.480
<v Speaker 1>governance tokens and and I'm exaggerating a little bit as

0:04:45.520 --> 0:04:48.160
<v Speaker 1>I described this, Like clearly a lawyer has touched this, right,

0:04:48.200 --> 0:04:51.000
<v Speaker 1>Like there's like an argument that these things are not

0:04:51.120 --> 0:04:53.600
<v Speaker 1>equity securities, right. The argument is, like, these things are

0:04:53.640 --> 0:04:57.200
<v Speaker 1>governance tokens, their utility tokens. They are usable in some

0:04:57.279 --> 0:05:00.680
<v Speaker 1>app and they don't carry equity like rights to the

0:05:00.760 --> 0:05:03.960
<v Speaker 1>profits of that protocol. We've just talked a lot about

0:05:04.000 --> 0:05:08.040
<v Speaker 1>securities and the sec and tokens. If you in other

0:05:08.080 --> 0:05:10.200
<v Speaker 1>than telling people read read your newsletter and what you

0:05:10.200 --> 0:05:12.960
<v Speaker 1>write about this constantly, Um, how would you define securities

0:05:12.960 --> 0:05:19.839
<v Speaker 1>for our listeners? So securities, it's a complicated question. So,

0:05:19.880 --> 0:05:21.960
<v Speaker 1>like the main thing is like stocks and bonds, right,

0:05:22.200 --> 0:05:24.240
<v Speaker 1>Like a sheriff stock is a security, a bond is

0:05:24.240 --> 0:05:27.640
<v Speaker 1>a security. And then the SEC has this this thing

0:05:27.720 --> 0:05:30.120
<v Speaker 1>called the Howie test, which comes from a Supreme Court decision,

0:05:30.160 --> 0:05:32.520
<v Speaker 1>which which is for a thing called an investment contract,

0:05:32.520 --> 0:05:34.440
<v Speaker 1>which is another thing that's part of the definite the

0:05:35.240 --> 0:05:38.840
<v Speaker 1>statutory definition of security. An investment contract is a security,

0:05:39.120 --> 0:05:41.400
<v Speaker 1>And what makes something an investment contract is like there's

0:05:41.400 --> 0:05:43.640
<v Speaker 1>a multipart test, but it's like basically an investment of

0:05:43.680 --> 0:05:47.080
<v Speaker 1>money with the expectation of profit from the activities of

0:05:47.120 --> 0:05:49.080
<v Speaker 1>someone else. Right, So if you like give money to

0:05:49.560 --> 0:05:52.640
<v Speaker 1>a person who manages a company and she does some

0:05:52.760 --> 0:05:56.080
<v Speaker 1>stuff with your money, and then you expect a return

0:05:56.120 --> 0:05:58.240
<v Speaker 1>of your money, you know, with a profit from like

0:05:58.279 --> 0:06:00.640
<v Speaker 1>her activities, you know, that's a that's a sheriff stock

0:06:00.760 --> 0:06:02.240
<v Speaker 1>kind of But like if you don't call it a

0:06:02.240 --> 0:06:04.560
<v Speaker 1>sheriff stock and it has different bells and whistles, then

0:06:04.600 --> 0:06:06.800
<v Speaker 1>it's still an investment contract. And I think if you

0:06:06.839 --> 0:06:09.800
<v Speaker 1>look at the crypto world, I think most people would

0:06:09.800 --> 0:06:12.200
<v Speaker 1>say bitcoin is very clearly not a security because bitcoin

0:06:12.400 --> 0:06:14.920
<v Speaker 1>people buy because they expect profit. But there's not like

0:06:15.040 --> 0:06:19.080
<v Speaker 1>a there's no there's no agent acting acting to like

0:06:19.120 --> 0:06:22.279
<v Speaker 1>make a profit. Right, it's just purely um. It's like gold,

0:06:22.320 --> 0:06:24.040
<v Speaker 1>where like you can buy gold thinking the price of

0:06:24.080 --> 0:06:25.880
<v Speaker 1>gold will go up and it's not doing anything right.

0:06:25.880 --> 0:06:28.360
<v Speaker 1>You're just expecting the market to go up. But there

0:06:28.360 --> 0:06:30.560
<v Speaker 1>are these dances where like, buying something because you think

0:06:30.600 --> 0:06:32.440
<v Speaker 1>other people will buy it doesn't make it a security.

0:06:32.760 --> 0:06:34.320
<v Speaker 1>Buying something because you think it will be useful on

0:06:34.360 --> 0:06:36.760
<v Speaker 1>a protocol doesn't make it a security. Buying something because

0:06:36.800 --> 0:06:39.720
<v Speaker 1>you think like someone will build a useful business that

0:06:39.760 --> 0:06:42.360
<v Speaker 1>will make it profitable makes it, you know, more or

0:06:42.400 --> 0:06:45.640
<v Speaker 1>less a security, and tokens kind of have all those

0:06:45.680 --> 0:06:51.480
<v Speaker 1>things intertwined. So, Matt, we're going to talk about Celsius.

0:06:51.520 --> 0:06:54.320
<v Speaker 1>And before we start talking about Celsius, I wanna just

0:06:54.400 --> 0:06:58.320
<v Speaker 1>contextualize this with you know, SBF sort of riffing on

0:06:58.480 --> 0:07:03.080
<v Speaker 1>stage about the test that he had for whether he

0:07:03.120 --> 0:07:06.360
<v Speaker 1>would or would not consider bailing out a crypto company

0:07:06.440 --> 0:07:09.320
<v Speaker 1>or a crypto lender like a Celsius. Here's that, right.

0:07:09.360 --> 0:07:11.320
<v Speaker 1>The first test is not even which is bigger. The

0:07:11.360 --> 0:07:13.320
<v Speaker 1>first test is do I walk away from that first

0:07:13.320 --> 0:07:16.680
<v Speaker 1>call feeling moderately confident that I know what the numbers are,

0:07:16.800 --> 0:07:19.080
<v Speaker 1>whether or not they're good? Do I even know them right?

0:07:19.440 --> 0:07:22.840
<v Speaker 1>And like that was like sort of like the test

0:07:22.880 --> 0:07:25.600
<v Speaker 1>for us to like consider doing like just some emergency

0:07:25.600 --> 0:07:27.000
<v Speaker 1>thing while we could hear in other things. One of

0:07:27.040 --> 0:07:29.640
<v Speaker 1>the criteria was that we know what the numbers are

0:07:29.760 --> 0:07:33.480
<v Speaker 1>whether or not they're good. Um, and some failed that

0:07:33.560 --> 0:07:35.960
<v Speaker 1>test of like not just the numbers were bad, but

0:07:36.000 --> 0:07:38.960
<v Speaker 1>like we literally came away confused. We've talked about one

0:07:38.960 --> 0:07:41.680
<v Speaker 1>domain which people are clamoring for a certain type of

0:07:41.760 --> 0:07:44.680
<v Speaker 1>SEC clarity, But there's another domain in which people are

0:07:44.680 --> 0:07:47.680
<v Speaker 1>also clamoring for any type of SEC clarity, and that

0:07:47.880 --> 0:07:51.200
<v Speaker 1>is situations like what's happening with the Celsius is the

0:07:51.240 --> 0:07:55.400
<v Speaker 1>three hours capital where you once again have a bunch

0:07:55.440 --> 0:07:59.440
<v Speaker 1>of people who arguably should have been smarter about their

0:07:59.640 --> 0:08:03.480
<v Speaker 1>risk management, etcetera. And you know, in an interview that

0:08:03.480 --> 0:08:05.080
<v Speaker 1>you had with sound back when Freed, he was like,

0:08:05.160 --> 0:08:07.720
<v Speaker 1>maybe a regulator should have asked, is there any collateral

0:08:07.800 --> 0:08:10.240
<v Speaker 1>backing this? Is there is there like anything substantive to this.

0:08:10.760 --> 0:08:12.720
<v Speaker 1>I think one thing that regulation would really want to

0:08:13.000 --> 0:08:15.840
<v Speaker 1>do is like ask is there collateral? Right? Like that

0:08:15.840 --> 0:08:19.280
<v Speaker 1>that seems like a really important perspective that like there

0:08:19.320 --> 0:08:22.440
<v Speaker 1>should have been somewho out of oversight, your transparency or

0:08:22.480 --> 0:08:25.360
<v Speaker 1>like you know, enforced good risk management on but there

0:08:25.400 --> 0:08:28.120
<v Speaker 1>just wasn't an again from the outward facing perspective, no

0:08:28.160 --> 0:08:30.280
<v Speaker 1>one has any idea whether or not you actually got

0:08:30.320 --> 0:08:35.520
<v Speaker 1>that collateral. These crypto lenning protocols, I think we're very

0:08:35.640 --> 0:08:39.880
<v Speaker 1>highly leveraged and investing and weird stuff, and people may

0:08:39.880 --> 0:08:41.880
<v Speaker 1>not have realized how leveraged they were, or how much

0:08:41.960 --> 0:08:44.800
<v Speaker 1>weird stuff they had, or how concentrated it was, or

0:08:44.840 --> 0:08:47.200
<v Speaker 1>how insecured it was. You know. Sunda Can said, like,

0:08:47.200 --> 0:08:49.000
<v Speaker 1>you know, people sort of assume there's collateral, and a

0:08:49.040 --> 0:08:50.800
<v Speaker 1>lot of these things are making on secured linths. So

0:08:50.840 --> 0:08:52.600
<v Speaker 1>one thing is like you could have better disclosure, and

0:08:52.600 --> 0:08:54.520
<v Speaker 1>one way to get better disclosure is to register things

0:08:54.559 --> 0:08:58.439
<v Speaker 1>of security. And you look at like Celsius, like cells.

0:08:58.520 --> 0:09:01.120
<v Speaker 1>The product that Celsius was selling was very similar to

0:09:01.160 --> 0:09:03.120
<v Speaker 1>the product that block Fire was trying to sell that

0:09:03.120 --> 0:09:05.400
<v Speaker 1>they got find a hundred million, find a hundred million

0:09:05.400 --> 0:09:08.160
<v Speaker 1>dollars for and that the SEC said, this product, this

0:09:08.320 --> 0:09:11.080
<v Speaker 1>like crypto lending product, is a security and so you

0:09:11.120 --> 0:09:12.960
<v Speaker 1>have to register. And by the coin based tried to

0:09:13.480 --> 0:09:15.719
<v Speaker 1>similar things that got shut down before they could even

0:09:15.760 --> 0:09:17.800
<v Speaker 1>do it. So like is crypto lending and security? Well,

0:09:17.800 --> 0:09:19.800
<v Speaker 1>the SEC certainly thinks it is. And the fact that

0:09:19.840 --> 0:09:23.120
<v Speaker 1>Celsius was doing it without registering it. One suggests that

0:09:23.160 --> 0:09:25.560
<v Speaker 1>the people involved in Celsius could be liable for like

0:09:25.760 --> 0:09:29.000
<v Speaker 1>deep pockets that floated around Celsius, people who promoted Selsia's,

0:09:29.000 --> 0:09:31.000
<v Speaker 1>people who bought Selsia's you know, tokens and sold them

0:09:31.080 --> 0:09:33.360
<v Speaker 1>or whatever. Or the people involved in Celsias could be

0:09:33.400 --> 0:09:36.280
<v Speaker 1>liable for um, you know, unregistered sales of securities where

0:09:36.280 --> 0:09:37.360
<v Speaker 1>they have to get the money back. I don't know

0:09:37.360 --> 0:09:39.240
<v Speaker 1>how valuable that is because like the money is gone.

0:09:40.000 --> 0:09:41.920
<v Speaker 1>It's not like there's some other pocket of money that

0:09:42.200 --> 0:09:44.640
<v Speaker 1>has the Celsius money. But that's one thing. Another thing

0:09:44.720 --> 0:09:47.000
<v Speaker 1>is like should they have registered that. If they had

0:09:47.040 --> 0:09:49.040
<v Speaker 1>registered that, then people could have looked at their financial

0:09:49.040 --> 0:09:51.679
<v Speaker 1>statements and said, oh, this is like super levered. Right.

0:09:51.720 --> 0:09:53.440
<v Speaker 1>I don't want to put too much emphasis on that,

0:09:53.480 --> 0:10:00.000
<v Speaker 1>because Voyager is a public company that does have financial states.

0:10:00.040 --> 0:10:01.480
<v Speaker 1>It's like it's based on the yes with listened in

0:10:01.520 --> 0:10:03.600
<v Speaker 1>Canada and like you can go read the financial statements

0:10:03.640 --> 0:10:05.600
<v Speaker 1>and you can be like, oh, wow, this is lever

0:10:05.760 --> 0:10:08.080
<v Speaker 1>and like investing in crypto and people bought it anyway, right,

0:10:08.080 --> 0:10:10.720
<v Speaker 1>So it's not like transparency is not the end all. Yeah.

0:10:10.720 --> 0:10:12.480
<v Speaker 1>I mean think about like how people invest in crypto,

0:10:12.520 --> 0:10:14.520
<v Speaker 1>and people think about people invest in stocks, and like,

0:10:14.720 --> 0:10:16.320
<v Speaker 1>you know, ask how many people are going to read

0:10:16.320 --> 0:10:19.720
<v Speaker 1>a balance sheet. There's there's a assumption in the stock

0:10:19.760 --> 0:10:22.760
<v Speaker 1>market that like like super dangerous over levered companies like

0:10:22.800 --> 0:10:24.760
<v Speaker 1>want to tract a lot of institutional capital and so

0:10:24.840 --> 0:10:27.280
<v Speaker 1>like the price will below and retail investors won't. But

0:10:27.520 --> 0:10:29.240
<v Speaker 1>and I think that's less true in crypto. And it's

0:10:29.240 --> 0:10:30.840
<v Speaker 1>like less true in the stock market than people thought

0:10:30.840 --> 0:10:32.920
<v Speaker 1>it was because like you have events like games that

0:10:33.200 --> 0:10:37.079
<v Speaker 1>where the sort of institutional conventional wisdom doesn't dissuade people

0:10:37.160 --> 0:10:40.880
<v Speaker 1>from taking a flyer on the stock. Coming up more

0:10:40.960 --> 0:10:44.080
<v Speaker 1>on coin Base Securities and Sam bankman Free It's Crypto

0:10:44.120 --> 0:10:54.600
<v Speaker 1>Strategy with Bloomberg opinion columnist Matt Levine. The only thing

0:10:54.640 --> 0:10:57.160
<v Speaker 1>I'd say about Celsius and like the blow up of

0:10:57.160 --> 0:10:59.640
<v Speaker 1>crypto lenders because like when Sam mcman freed says, you know,

0:10:59.640 --> 0:11:01.400
<v Speaker 1>maybe a regulator should have asked if I if I

0:11:01.440 --> 0:11:04.560
<v Speaker 1>had collateral. That's not really an issue for the sec

0:11:05.040 --> 0:11:10.040
<v Speaker 1>that's that is an intuition around banking. These crypto shadow

0:11:10.080 --> 0:11:13.200
<v Speaker 1>banks are banks. You know. One big symptom of the

0:11:13.240 --> 0:11:15.080
<v Speaker 1>crypto winter is like there's been a blow up of

0:11:15.480 --> 0:11:17.240
<v Speaker 1>a number of platforms that I would sort of loosely

0:11:17.280 --> 0:11:20.760
<v Speaker 1>call crypto shadow banks, where they're taking in short term

0:11:20.840 --> 0:11:24.720
<v Speaker 1>demand money from customers and lending it in weird, opaque ways.

0:11:24.800 --> 0:11:28.320
<v Speaker 1>And you have touched in some form probably all of those.

0:11:28.800 --> 0:11:32.040
<v Speaker 1>You've been a lender, a borrower, a rescuer. So like

0:11:32.040 --> 0:11:34.800
<v Speaker 1>the natural segway is like how much of the rescuing

0:11:34.840 --> 0:11:38.520
<v Speaker 1>activity is about that very long run view of like

0:11:38.600 --> 0:11:41.920
<v Speaker 1>it is healthier for the crypto ecosystem that you are

0:11:42.000 --> 0:11:45.319
<v Speaker 1>levered to for depositors not to be constantly blown up.

0:11:45.559 --> 0:11:47.439
<v Speaker 1>That's a real part of it. And maybe to make

0:11:47.480 --> 0:11:50.600
<v Speaker 1>this like more concrete, the explicit sort of like working

0:11:50.600 --> 0:11:52.600
<v Speaker 1>principle we had in a number of these was like

0:11:52.679 --> 0:11:55.480
<v Speaker 1>it's okay to do a deal that is moderately bad

0:11:56.080 --> 0:11:58.000
<v Speaker 1>in bailing out a place like the bar was not

0:11:58.400 --> 0:12:00.200
<v Speaker 1>this is a good return on investment. The bar is

0:12:00.240 --> 0:12:03.079
<v Speaker 1>like this is not that bad a return on investment,

0:12:03.160 --> 0:12:05.960
<v Speaker 1>or like we are incinerating a relatively small issue amount

0:12:06.000 --> 0:12:10.800
<v Speaker 1>of money in doing this. Actual banks, you know, get

0:12:10.840 --> 0:12:14.160
<v Speaker 1>collateral for their loans and like you know, don't concentrate

0:12:14.200 --> 0:12:17.120
<v Speaker 1>all their loan portfolio and tests yeah, Like they have

0:12:17.160 --> 0:12:19.880
<v Speaker 1>a lot of stuff that regulators impose on them that

0:12:19.920 --> 0:12:21.880
<v Speaker 1>are not about you know, the like the SEC is

0:12:22.000 --> 0:12:25.440
<v Speaker 1>essentially a disclosure regulator, right, and like banking regulation is

0:12:25.440 --> 0:12:28.800
<v Speaker 1>not essentially about disclosure. It's essentially about safety and soundness.

0:12:28.880 --> 0:12:32.320
<v Speaker 1>And there is a system of regulation based on safety

0:12:32.320 --> 0:12:36.480
<v Speaker 1>and soundness for banks. And one sort of stress point

0:12:36.520 --> 0:12:39.960
<v Speaker 1>in the traditional financial industry is about like what sorts

0:12:39.960 --> 0:12:43.240
<v Speaker 1>of shadow banks should get swept up into what sort

0:12:43.240 --> 0:12:45.680
<v Speaker 1>of like quasi banking type regulation where you have like,

0:12:45.720 --> 0:12:47.920
<v Speaker 1>you know, money market funds are just like, oh, their

0:12:48.000 --> 0:12:49.920
<v Speaker 1>SEC regulator, they just do whatever they want. And then

0:12:49.920 --> 0:12:52.040
<v Speaker 1>like people are you know, that's bad because they're kind

0:12:52.040 --> 0:12:53.960
<v Speaker 1>of a bank, and so like it's driven by the SEC.

0:12:54.080 --> 0:12:56.440
<v Speaker 1>There's some you know amount of like capital and safety

0:12:56.440 --> 0:12:58.960
<v Speaker 1>and sundence regulation that that effectively applies to money market

0:12:59.000 --> 0:13:03.440
<v Speaker 1>funds because they're like and then in crypto banks, it's like, ah,

0:13:03.480 --> 0:13:04.880
<v Speaker 1>we'll see what we can get away with, you know.

0:13:05.240 --> 0:13:06.920
<v Speaker 1>And like you could say, well they should have they

0:13:06.920 --> 0:13:09.320
<v Speaker 1>should have to register securities and disclose their financials, but

0:13:09.320 --> 0:13:10.880
<v Speaker 1>like you look at page you're like that doesn't help.

0:13:11.400 --> 0:13:12.880
<v Speaker 1>I think that like the idea of like having a

0:13:12.880 --> 0:13:15.240
<v Speaker 1>safety and sinus regulator for like a crypto exchange. This

0:13:15.320 --> 0:13:18.200
<v Speaker 1>feels many years away, right, and very like antithetical to

0:13:18.280 --> 0:13:21.719
<v Speaker 1>like the philosophy of the whole, the whole, the whole thing, right,

0:13:21.760 --> 0:13:23.599
<v Speaker 1>Like like the FED is going to set up a

0:13:23.679 --> 0:13:26.160
<v Speaker 1>new regulator who will tell crypto exchanges what they can

0:13:26.200 --> 0:13:28.240
<v Speaker 1>invest in. It just doesn't seem like that's gonna happen.

0:13:28.400 --> 0:13:31.440
<v Speaker 1>But it's also one way to prevent the exchanges from

0:13:31.440 --> 0:13:33.599
<v Speaker 1>losing all their customers money. I think that like a

0:13:33.720 --> 0:13:36.000
<v Speaker 1>thing that happens here is that people, you know, it's

0:13:36.040 --> 0:13:38.199
<v Speaker 1>a bull market. It was a bull It was a

0:13:38.240 --> 0:13:41.079
<v Speaker 1>bull market for crypto. People are used to like things

0:13:41.120 --> 0:13:43.000
<v Speaker 1>working the way they're supposed to work. You know, people

0:13:43.040 --> 0:13:46.320
<v Speaker 1>got like cuddled by like financial exchanges and banks like

0:13:46.440 --> 0:13:48.760
<v Speaker 1>just kind of working, and so when they put their

0:13:48.800 --> 0:13:50.800
<v Speaker 1>money into celsus, they're like, well, that's my money, I'll

0:13:50.840 --> 0:13:52.640
<v Speaker 1>get that back, even if you know, they sort of

0:13:52.640 --> 0:13:54.679
<v Speaker 1>expect things to work in a nice way and then

0:13:54.720 --> 0:13:57.360
<v Speaker 1>like they work in a terrible way, and maybe like

0:13:57.480 --> 0:14:01.000
<v Speaker 1>in the future, people will ask better questions. I love

0:14:01.040 --> 0:14:07.160
<v Speaker 1>your optimism. I'm not that optimistic. I'm saying this for completeness.

0:14:07.640 --> 0:14:10.840
<v Speaker 1>Um but like you know, I would separate like will

0:14:10.880 --> 0:14:13.920
<v Speaker 1>people like learn substantive lessons from like will people be

0:14:14.000 --> 0:14:16.640
<v Speaker 1>less enthusiastic I've putting their money into crypto schemes when

0:14:16.640 --> 0:14:18.480
<v Speaker 1>the crypto schemes go down, right, Like, I don't know,

0:14:18.760 --> 0:14:26.360
<v Speaker 1>we shall see. I've been fascinated, you know. We we

0:14:26.440 --> 0:14:29.000
<v Speaker 1>had an interview with the founders of Three Arrows Capital

0:14:29.040 --> 0:14:31.840
<v Speaker 1>in which they kind of told us on the record

0:14:32.000 --> 0:14:35.600
<v Speaker 1>that the biggest mistake was expecting that markets would continue

0:14:35.640 --> 0:14:39.119
<v Speaker 1>to rise and that credit would continue to be available henceforth.

0:14:39.800 --> 0:14:44.880
<v Speaker 1>And sure, but it does. It does strike me. And

0:14:44.920 --> 0:14:47.040
<v Speaker 1>this is also something that SPF said. And when you

0:14:47.080 --> 0:14:50.960
<v Speaker 1>look at the companies in crypto and frankly across the space,

0:14:50.960 --> 0:14:54.320
<v Speaker 1>I think profitability with sort of a dirty word for

0:14:54.360 --> 0:14:56.720
<v Speaker 1>a number of years, and it is returned to investor

0:14:56.800 --> 0:15:00.520
<v Speaker 1>parlance right like last year if he saw a typical

0:15:00.600 --> 0:15:04.800
<v Speaker 1>funding round from vcs, like, was that valuation related to

0:15:04.840 --> 0:15:07.800
<v Speaker 1>the profit of the company, probably not, like revenue was

0:15:07.840 --> 0:15:10.960
<v Speaker 1>sort of like like they're sort of without saying so explicitly,

0:15:11.040 --> 0:15:14.840
<v Speaker 1>everyone just subtly slipped from like you know, even though

0:15:14.880 --> 0:15:17.840
<v Speaker 1>our profit or something to just purely revenue as like

0:15:17.880 --> 0:15:20.720
<v Speaker 1>the driver of value and like no thought towards like

0:15:21.160 --> 0:15:24.160
<v Speaker 1>how profit would eventually catch up to that. And I

0:15:24.200 --> 0:15:28.080
<v Speaker 1>think that there's been a substantial rerating towards looking for

0:15:28.120 --> 0:15:31.520
<v Speaker 1>at least likely or at least flaws will pathway towards

0:15:31.520 --> 0:15:35.360
<v Speaker 1>profitability being a core component of an investment thesis in

0:15:35.400 --> 0:15:38.640
<v Speaker 1>a company, which feels a little strange to say, but

0:15:38.640 --> 0:15:40.720
<v Speaker 1>but I think was something that was kind of missing.

0:15:41.720 --> 0:15:43.400
<v Speaker 1>Do you think any of this is going to change

0:15:43.400 --> 0:15:46.840
<v Speaker 1>for institutional lenders and investors and players at all? Or

0:15:47.000 --> 0:15:48.840
<v Speaker 1>are we just going to be like having another conversation

0:15:48.880 --> 0:15:53.120
<v Speaker 1>in five years being like, huh, remember when I don't know,

0:15:53.200 --> 0:15:55.480
<v Speaker 1>I don't know what I mean? So what does institutional

0:15:55.480 --> 0:15:57.320
<v Speaker 1>I mean? I mean, like, one thing it means is

0:15:57.360 --> 0:16:00.640
<v Speaker 1>like the most cynical possible view is like you're putting

0:16:00.640 --> 0:16:02.880
<v Speaker 1>money into protocols that you can blow out to retail, right,

0:16:03.080 --> 0:16:06.400
<v Speaker 1>where like as institutional is doing an arbitrage between you know,

0:16:06.800 --> 0:16:10.040
<v Speaker 1>lots of money. Yeah, and I think that you know,

0:16:10.120 --> 0:16:12.640
<v Speaker 1>one would hope a retail pullback sort of eliminates that.

0:16:12.720 --> 0:16:17.040
<v Speaker 1>And then you have institutional investors who are thinking, you know,

0:16:17.160 --> 0:16:20.600
<v Speaker 1>about investing in building some sort of long term viable

0:16:20.640 --> 0:16:24.800
<v Speaker 1>business different skills set, right, I mean, I mean, yeah,

0:16:24.840 --> 0:16:28.080
<v Speaker 1>the skill set disconnect. It is really like what are

0:16:28.120 --> 0:16:30.200
<v Speaker 1>you doing is an institutional player in crypto? Like one

0:16:30.240 --> 0:16:32.840
<v Speaker 1>thing you could be doing is you're a tech venture capitalist,

0:16:32.920 --> 0:16:35.920
<v Speaker 1>where you're like picking teams and businesses that will build

0:16:35.920 --> 0:16:39.400
<v Speaker 1>long term, viable, valuable products. Right. Another thing you could

0:16:39.400 --> 0:16:40.920
<v Speaker 1>be doing is like your a hedge fund or like

0:16:41.120 --> 0:16:44.200
<v Speaker 1>electronic carbitage firm, and there you're like, there are a

0:16:44.240 --> 0:16:46.640
<v Speaker 1>lot of gamblers. I can look at like patterns and

0:16:46.640 --> 0:16:49.840
<v Speaker 1>that gambling and try to you know, anticipate market moves

0:16:49.880 --> 0:16:52.240
<v Speaker 1>and make money from it. And like that's a viable

0:16:52.760 --> 0:16:55.920
<v Speaker 1>institutional product. But like there needs to be some audience

0:16:55.960 --> 0:16:57.840
<v Speaker 1>that you're interacting with, right right, who's on the other

0:16:57.880 --> 0:16:59.880
<v Speaker 1>side of the because if it's just like a bunch

0:16:59.880 --> 0:17:02.000
<v Speaker 1>of abi trage heads funds, than like you know, that

0:17:02.040 --> 0:17:04.320
<v Speaker 1>business gets a lot more cut threat. And also like

0:17:04.359 --> 0:17:08.919
<v Speaker 1>that if it's just those people that goes away like

0:17:08.960 --> 0:17:10.919
<v Speaker 1>that that business exists in the stock market, right, But

0:17:10.920 --> 0:17:12.720
<v Speaker 1>the stock market is like doing something, right, it's like

0:17:12.760 --> 0:17:15.000
<v Speaker 1>funding businesses, and so like you need to have that

0:17:15.160 --> 0:17:18.320
<v Speaker 1>underlying real economic activity in order to have run an

0:17:18.320 --> 0:17:21.639
<v Speaker 1>abit trage business against it indeed, well, thank you, terrific,

0:17:21.760 --> 0:17:24.640
<v Speaker 1>thank you. You can find more of Matt Levin's work

0:17:24.760 --> 0:17:27.959
<v Speaker 1>on the Bloomberg terminal, on Bloomberg dot com or on Twitter.

0:17:28.280 --> 0:17:32.399
<v Speaker 1>He's Matt Underscore Levine. That's l E V I n E.

0:17:35.160 --> 0:17:38.239
<v Speaker 1>On the next episode of Bloomberg Crypto. Despite being one

0:17:38.280 --> 0:17:41.280
<v Speaker 1>of the leading cryptocurrency exchanges in the world, coin Base

0:17:41.320 --> 0:17:44.439
<v Speaker 1>has had, frankly a rough couple of months. They've had

0:17:44.480 --> 0:17:49.400
<v Speaker 1>to contend with speculations about bankruptcy, deal with increasing regulatory scrutiny,

0:17:49.640 --> 0:17:53.960
<v Speaker 1>and even handle internal employee dissent. So what's really going

0:17:54.000 --> 0:17:57.080
<v Speaker 1>on over there? To help us better understand what's take

0:17:57.119 --> 0:17:59.560
<v Speaker 1>for coin Base, I'll be joined by Bloomberg Business Week

0:17:59.560 --> 0:18:07.200
<v Speaker 1>columnists Max Chapkin. This is Bloomberg Crypto, a daily podcast

0:18:07.200 --> 0:18:10.320
<v Speaker 1>from Bloomberg and I Heart Radio. For more shows from

0:18:10.320 --> 0:18:13.719
<v Speaker 1>I Heart Radio, visit the I Heart Radio app, Apple Podcasts,

0:18:13.920 --> 0:18:17.399
<v Speaker 1>or wherever you get your podcasts. Send us your comments,

0:18:17.480 --> 0:18:20.480
<v Speaker 1>questions or suggestions for the show to Crypto at Bloomberg

0:18:20.520 --> 0:18:23.600
<v Speaker 1>dot net or find us on Twitter. We're at Crypto.

0:18:25.920 --> 0:18:28.880
<v Speaker 1>The supervising producer of Bloomberg Crypto is Vicky ver Galina,

0:18:29.520 --> 0:18:33.040
<v Speaker 1>our senior producer is Janet Babin. Desta wonder At is

0:18:33.040 --> 0:18:40.080
<v Speaker 1>our engineer. Original music by Leo Sidrin. I'm Stacy Marie

0:18:40.119 --> 0:18:41.640
<v Speaker 1>Schmal We'll be back tomorrow.