Speaker 1: This is Bloomberg Crypto Daily Bloomberg I heard podcast and
Speaker 1: I'm Philip Lawyer Krans their senior crypto editor for Bloomberg News.
Speaker 1: In today for Stacy Marie Ishmael, it's Tuesday, December six,
Speaker 1: It's time to rebuild. Guess what it is the perfect
Speaker 1: time to build, grow, how the build things, time to
Speaker 1: build up, taking the time to actually build, a great
Speaker 1: opportunity to build. You know what time it is? Okay,
Speaker 1: it's time to build. Time to put our heads down
Speaker 1: in a down market and and really, you know, make
Speaker 1: projects that will last. Well. That's a catchy phrase that's
Speaker 1: often used by the crypto industry folks after they've had
Speaker 1: a massive implotion like the one we just had in
Speaker 1: which Crypto Exchange f t X filed for bankruptcy after
Speaker 1: withdrawals first stopped and the company's very well known CEO,
Speaker 1: Sam Bankman Free resigned. Now here's the problem. There have
Speaker 1: been many times to rebuild this year. We've had many
Speaker 1: implotions this year, and so the skeptic could be forgiven
Speaker 1: for asking exactly what are we going to rebuild? Well,
Speaker 1: here to help me answer that question today is Bloomberg
Speaker 1: crypto blogger and Malina called I guess in crypto the
Speaker 1: thing to be wary of is people flashing about the
Speaker 1: money and saying, we have this bitch around to invest
Speaker 1: in companies, or we're going to save that one, We're
Speaker 1: going to save that one um and actually that not
Speaker 1: happening in the end. So we keep hearing this phrase again,
Speaker 1: you know, the refrain of it's time to build or
Speaker 1: it's time to rebuild um, whichever you prefer. But the
Speaker 1: question is build exactly. It's often the phrase that you
Speaker 1: hear in crypto, right like It's always like when when
Speaker 1: you get into the dull drums of the market, it's
Speaker 1: the time that crypto should be focusing on rebuilding itself
Speaker 1: but also coming up with the most innovative new things
Speaker 1: that will lead the next bull market. So it was
Speaker 1: often said at the beginning of this year that, for example,
Speaker 1: some of crypto's biggest companies were founded in the last
Speaker 1: bear market. And it's what even some of the sector's
Speaker 1: largest spectra capitalists like Andrews and horrow It's are very
Speaker 1: big proponents of They talk about things like hype cycles
Speaker 1: and they show fancy looking diagrams where they say like
Speaker 1: we're in our fourth or fifth hype cycle. I think
Speaker 1: we are half for crypto, UM and and so like
Speaker 1: it's in these moments where crypto seems we've beaten down
Speaker 1: that actually it's where at least as investors they can
Speaker 1: see projects that might be the biggest giants for the
Speaker 1: next one and so UM, I guess there's both a
Speaker 1: means of trying to keep the street alive but also
Speaker 1: trying to keep morale going. UM. That's why we hear
Speaker 1: this phrase repeated so often. It reminds me a little
Speaker 1: bit of like almost I think it's almost twenty years
Speaker 1: ago you had you know, dot com mania that gave
Speaker 1: way to this ginormous bust in two thousand and one,
Speaker 1: two thousand and two. Is this two thousand for tech
Speaker 1: and crypto? I mean for some sectors of the tech market. Absolutely,
Speaker 1: it's it's a hundred percent of bubble this first thing,
Speaker 1: and then you get companies like Facebook, um, Twitter, Is
Speaker 1: that what they're going for? Is that the kind of
Speaker 1: movement that the end raising Horowitz is see here a
Speaker 1: repeat of that pattern where this is where the really
Speaker 1: good companies get built. When you know, not just anybody
Speaker 1: can get money, but but only the best kind of
Speaker 1: the weeds get separated from the chaff, if you will. Yeah,
Speaker 1: I think like the I mean, they probably wouldn't like
Speaker 1: to say that this, this bare market is like the
Speaker 1: dot com like boom and bust in the the I
Speaker 1: doubt they'd want to admit just how many companies might
Speaker 1: go under in this period, and a lot of this
Speaker 1: this initial like buzz around time to build was happening
Speaker 1: at the very beginning when we were just seeing prices
Speaker 1: falling but fewer bankruptcies. Um. But in trying to kind
Speaker 1: of pinpoint the next big bet, this is obviously the
Speaker 1: best time for investors to be really thinking about due
Speaker 1: diligence and making investment decisions that are more predicated on
Speaker 1: you know, what is the potential revenue of this product,
Speaker 1: what is the potential profit of this product, rather than
Speaker 1: um moonshot bets where you're just like, oh, we'll ask
Speaker 1: to a couple of hundred thousand dollars in this thing
Speaker 1: and see what happens, and if I lose it, I
Speaker 1: lose it. It's fine. That's the mentality that you see
Speaker 1: during a ball market. So if we're operating on the
Speaker 1: assumption that not a hell of a lot of crypto
Speaker 1: projects are hugely profitable right now. So the money where
Speaker 1: is it coming from? It's the see is it elsewhere?
Speaker 1: What are the vcs doing well? Investment in products so
Speaker 1: far this year has been falling quite a lot. I
Speaker 1: think this year in particular is the first year where
Speaker 1: we're seeing VC gets truly burned by the crypto investments
Speaker 1: they've made. Probably in previous because they didn't have as
Speaker 1: much exposure and they were still thinking about segments like
Speaker 1: tech and engineering and I don't know, like investing in
Speaker 1: the next robin Hood or Airbnb um, and so there's
Speaker 1: obviously going to be a lot more caution now around
Speaker 1: how they can really value the investments that they make.
Speaker 1: In the last few months or so, we've seen VC
Speaker 1: investment in cryptso really really plummet. Only several segments are
Speaker 1: really kind of holding up in that respect, like blockchain gaming,
Speaker 1: And my my thesis on that is just because those
Speaker 1: are segments that are more consumer focused, consumer facing, and
Speaker 1: so you don't necessarily have to be convincing a gamer
Speaker 1: on their Xbox that the blockchain under this is really
Speaker 1: going to change the way they do something, and you
Speaker 1: have to go through these weird technical loopholes to get
Speaker 1: to the product and make that business successful compared to
Speaker 1: if you're trying to sell them like a defy landing platform. Yeah. Well,
Speaker 1: I want to come back to the sort of the
Speaker 1: taking the VC perspectives. So if I'm Sequoia, I just
Speaker 1: wrote off more than two million dollars worth of FDx investment,
Speaker 1: I mean, these are these are the people that these
Speaker 1: are the smartest people in the room supposedly. I mean,
Speaker 1: if I am Sequoia and I got burned to that extent,
Speaker 1: surely you have to be thinking, I Am going to
Speaker 1: put so much due diligence into my next bet. What
Speaker 1: do you think is going through their minds right now
Speaker 1: as they look on this space. Yes, there are probably
Speaker 1: bargains to be had, but you really want to make
Speaker 1: sure that you got it right this time, wouldn't you. Yeah,
Speaker 1: we've definitely even been seeing this before companies like ft
Speaker 1: X collapsed. So for example, in the UK, the is
Speaker 1: a really big crypto technology company called Copper which develops
Speaker 1: systems for those you cans do trading in crypto um
Speaker 1: so they deal more with the institutions than anybody in retail.
Speaker 1: But even for them, they started raising their latest funding
Speaker 1: around late last year, so even when the ball market
Speaker 1: was still alive UM and they didn't need they didn't
Speaker 1: really close any funding until part way through this year.
Speaker 1: And the reason being for that is that investors wanted
Speaker 1: more due diligence than they wanted to be more sure
Speaker 1: about the company they were investing in. And even now,
Speaker 1: when we hear the horror stories about some of the
Speaker 1: companies that did go bust and the kinds of due
Speaker 1: diligence they gave to their investors, like one big hedge
Speaker 1: fund who just gave their investors a single piece of
Speaker 1: paper with a line on saying we have X amount
Speaker 1: of money. That's all you need to know. These are
Speaker 1: the kinds of like horror stories that bcs are now
Speaker 1: trying to avoid. And particularly with FTX being an industry
Speaker 1: darling and the way it was UM, it's definitely a
Speaker 1: lesson learned. But that's not to say is not still
Speaker 1: money out there. A lot of these vcs have now
Speaker 1: raised funds that are specifically to invest in crypto UM
Speaker 1: Yeah andres and Horrowitz Paradigm. These are all funds that
Speaker 1: have billions of dollars of capital ready to deploy just
Speaker 1: for crypto investments, and so to a certain extent, yes,
Speaker 1: they'll be more careful about how they do it. Maybe
Speaker 1: the pace of investing will slow, but the money is
Speaker 1: still there and still needs to be spent somehow UM,
Speaker 1: and so that's why we'll still continue to see at
Speaker 1: least some form of industry going forward. The original vision
Speaker 1: here was, Hey, we're going to build a more fair
Speaker 1: and transparent alternative financial system for the little guy. And
Speaker 1: then you look at this year crypto lenders getting wiped out,
Speaker 1: FTX getting wiped out, you know, people with tons of
Speaker 1: money on these platforms frozen locked in UM. Are we
Speaker 1: then walking away from that or is that just kind
Speaker 1: of like put on hold for now? Where do you
Speaker 1: see that going? There's obviously still a little bit of
Speaker 1: development happening in the in the realm of crypto and
Speaker 1: wanting to become the next banking system or payment system,
Speaker 1: because there are still very large companies who sole ethos
Speaker 1: is to make that happen. If we think about companies
Speaker 1: like Circle, for example, which issues the the usdc UM
Speaker 1: stable coin UM, that's a company that is very clear
Speaker 1: in its dreams and wants to be, you know, not
Speaker 1: necessarily a bank, but a payment rail that everybody can
Speaker 1: rely on and use their token the same way you
Speaker 1: might spend just with like contactless payments in a shop. Um.
Speaker 1: But just because those are in existence doesn't mean that
Speaker 1: that the mission is going smoothly, and it's even going
Speaker 1: to go any faster, and particularly now that we have
Speaker 1: regulators coming on the scene and taking even harsher looks
Speaker 1: than we thought were. I mean, we were looking pretty
Speaker 1: clearly at crypto before, and now it's even more intense. Um,
Speaker 1: it's going to be even tougher for a company to
Speaker 1: convince the SEC or the CFTC or the Federal Reserve
Speaker 1: that these are products that they should allow within that
Speaker 1: regulated sphere. And then you have Neil Cascari from the
Speaker 1: the FED, the New York Fed um with his tweet
Speaker 1: on Friday basically crypto is pointless. You know, when you
Speaker 1: hear that from a FED official, I'm guessing. I mean,
Speaker 1: my thinking is you're not going to again. You know,
Speaker 1: like these are pretty strong statements there. There is no
Speaker 1: point in this, basically is what he said. It has
Speaker 1: failed all the the functions that it was supposed to serve.
Speaker 1: It has failed in I mean, if you're a bank again,
Speaker 1: what are you thinking? Yeah, I think in the in
Speaker 1: this time in particular, what we hear from regulators most
Speaker 1: often is that crypto itself has proven that it has
Speaker 1: very little intrinsic value and so therefore it should be
Speaker 1: treated as a speculative asset that it is, and you
Speaker 1: should be prepared to lose all your money. But there
Speaker 1: is still this idea that perhaps blockchain technology distributed ledger
Speaker 1: technology has some kind of benefit benefit for banks in future.
Speaker 1: That depends on where you are. So for example, in
Speaker 1: the UK, we have a very good, faster payment system
Speaker 1: and so the appeal of something like instant payments with
Speaker 1: blockchain doesn't necessarily work out for us because we already
Speaker 1: have that. But in the US, where banking systems are
Speaker 1: quite slow, they take a lot of time. There has
Speaker 1: to be a lot of intermediaries. That's still a massive cell,
Speaker 1: and that might be why we see in the coming
Speaker 1: months and years um a lot more attention on things
Speaker 1: like Central Bank digital guarantees, where the FED can access
Speaker 1: all the benefits of blockchain but control it all within itself. Unfortunately,
Speaker 1: the track record of the FED is to do everything
Speaker 1: very slowly, so who knows when they will actually arrive.
Speaker 1: We'll be right back with m and Nicole for more
Speaker 1: on the crypto rebuilding process. All right, then, so let's
Speaker 1: turn to the eight hundred pound gorilla in the arena, Finance,
Speaker 1: or rather their CEO. What are they or what is he?
Speaker 1: What is he z? What is he up to? He's
Speaker 1: up to quite a lot of the minute, actually, I
Speaker 1: mean by the time this podcast episode comes out. Who
Speaker 1: knows whether what I'll say or will be outdated. Um,
Speaker 1: But from what we've heard from him so far, he
Speaker 1: is fast becoming the savior of the industry, or at
Speaker 1: least that's how Finance is positioning itself. There is potentially
Speaker 1: a rescue fund on its way for crypto projects that
Speaker 1: are ailing sea. You've talked about launching a crypto recovery fund.
Speaker 1: Where are you on that. There's being back and forth
Speaker 1: on how to structure that. Do we make it at
Speaker 1: a loose fund or do we make it an actual
Speaker 1: fund fund. I think we're kind of going with a
Speaker 1: loose approach where in a different industry players will just contribute. Um.
Speaker 1: We've also reported at Bloomberg that Binance was in discussion
Speaker 1: is at least for helping out Genesis with its one
Speaker 1: billion loan that it's after UM. Not yet clear whether
Speaker 1: Binance will actually participate in that, but in all areas,
Speaker 1: it seems finance is keen to portray itself as the
Speaker 1: the one exchange that is healthy, the one exchange that
Speaker 1: is is still there for investors um, and the one
Speaker 1: exchange with all the money to put the bill for
Speaker 1: things like this. And we warned this about actually FDx
Speaker 1: back in the summer and all the investments that sand
Speaker 1: bankwin Freed was making. The problem is when you have
Speaker 1: one company that is becoming that lender of last resort
Speaker 1: type of investor UM, the anti competitive behavior in that
Speaker 1: is quite striking. You might end up having a real
Speaker 1: true monopoly on your hands, especially in an industry where
Speaker 1: there is no regulation at present, and so there is
Speaker 1: nobody to step in and say no, you can't do that, sorry, yeah,
Speaker 1: And and so now like the biggest player, the giant
Speaker 1: player in this industry becomes essentially the gatekeeper, if you will.
Speaker 1: Although c said has been trying to, I guess, strike
Speaker 1: that balance between centralization and decentralization, but his pictures also
Speaker 1: to what you were speaking about before. His pictures also
Speaker 1: this idea of Hey, there are a lot of small
Speaker 1: promising projects plodding away out there. We might not know
Speaker 1: who they are, but they're good and they have sound technology.
Speaker 1: They're just short of cash. Is that is that sort
Speaker 1: of like is that a reasonable proposition right now? I
Speaker 1: guess it is, with VCS kind of being a little
Speaker 1: bit stingy. Yeah, I mean, obviously I wouldn't profess to
Speaker 1: know much about how much due diligence finance does on
Speaker 1: its investments, and he did make it very clear that
Speaker 1: the kinds of companies that he would be willing to
Speaker 1: back through this rescue fund would be ones that are,
Speaker 1: for example, profitable, which should mean that they should already
Speaker 1: have some kind of provable business model UM, which is
Speaker 1: actually something that's quite difficult to achieve in crypto sometimes.
Speaker 1: But the main issue with if if that does push
Speaker 1: your head is that, um, if finance then ends up
Speaker 1: being the one that holds all the cards, does that
Speaker 1: mean that finance holds a monopoly not just over you know,
Speaker 1: where investors are training as an exchange, but also in
Speaker 1: the technology that might be underpinning everything else. Um. And additionally,
Speaker 1: on top of that as well, you know a lot
Speaker 1: of these times, we've seen finance and others come out
Speaker 1: and say yes, we're going to invest in this company,
Speaker 1: We're going to save that one, and then a few
Speaker 1: days later, like we saw the FDXT, the deal falls away,
Speaker 1: nothing happens. And I guess in crypto the thing to
Speaker 1: be wary of is people flashing about the money and
Speaker 1: saying we have this much around to invest in companies,
Speaker 1: or we're going to save that one, We're going to
Speaker 1: save that one, um, and actually that not happening in
Speaker 1: the end. But now it's all about trying to build
Speaker 1: things that can either make those more palatable to a
Speaker 1: general audience, so improving the user experience um making it
Speaker 1: more easy to have a crypto wallet, for example, Or
Speaker 1: it's things about just trying to use crypto incentives, crypto technology, blockchain, etcetera.
Speaker 1: As underlying they is to improve general appetite products. So
Speaker 1: you know, maybe we'll see something like an Airbnb on
Speaker 1: the blockchain one day. That would be fun. I'm not
Speaker 1: really sure there's a use for it, but you know
Speaker 1: that's the goal. Well, I guess, I guess you know.
Speaker 1: The If there is one thing that history teaches us
Speaker 1: is these as we talked about in the start of
Speaker 1: this conversation. Um, you never know at the time at
Speaker 1: times zero, I guess that's where we are. We're sort
Speaker 1: of it feels like we're time zero now, where the
Speaker 1: industry is doing its best to wipe itself out and
Speaker 1: we're in this. We don't know what it's going to
Speaker 1: look like. But there might be something we didn't know
Speaker 1: in two thousand and two that there was going to
Speaker 1: be appetite for something like social media friends, and we
Speaker 1: might just we might just not have guessed at what
Speaker 1: the application where the real killer application is here? Is
Speaker 1: that fair to say? Yeah? But then if we think
Speaker 1: back to what I was saying earlier about how vcs
Speaker 1: have less of an appetite now, the moon shot be
Speaker 1: that that is the problem. I guess. In order to
Speaker 1: be able to predict what it is that might be
Speaker 1: the next version of social media, you have to have
Speaker 1: a fairly high risk tolerance for making bets that may
Speaker 1: not pan out. Um. And if anything, actually, even if
Speaker 1: we look outside of crypto and look at Facebook changing
Speaker 1: its name to Mesa and all the investment that they've
Speaker 1: put into the metaverse so far, um it has it
Speaker 1: has yet to pay off. I mean they won't shareholds
Speaker 1: of that. They said that we don't expect this to
Speaker 1: really be something that you'll actually see any profit from
Speaker 1: for several years. Yeah, I don't see myself hanging out
Speaker 1: in the metaverse just yet. Um, but we can sort
Speaker 1: of finish at that thought. They well, Web two started
Speaker 1: with Facebook. Well, well, Web three start with meta And
Speaker 1: I think that that is a topic for another time.
Speaker 1: But I guess the future will tell and we're going
Speaker 1: to be here to cover it, aren't we A many indeed,
Speaker 1: Thank you, Thank you. Can find more of mny colts
Speaker 1: reporting on the Bloomberg terminal and on Bloomberg dot com.
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Speaker 1: The supervising producer of Bloomberg Crypto is Vicky Verglina. Our
Speaker 1: senior producer is Janet Babin. Our producers are Mohammed Farruk
Speaker 1: and Sharon Burriro. Our associate producers are Ty Butler and
Speaker 1: Moses on Them. Desta wonder At is our engineer. Original
Speaker 1: music by Leo Sidran. I'm Stacy Maria Shmael. We'll be
Speaker 1: back tomorrow.