WEBVTT - What Are Crypto Diehards Rebuilding After FTX’s Fall?

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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 Krans their senior crypto editor for Bloomberg News.

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<v Speaker 1>In today for Stacy Marie Ishmael, it's Tuesday, December six,

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<v Speaker 1>It's time to rebuild. Guess what it is the perfect

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<v Speaker 1>time to build, grow, how the build things, time to

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<v Speaker 1>build up, taking the time to actually build, a great

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<v Speaker 1>opportunity to build. You know what time it is? Okay,

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<v Speaker 1>it's time to build. Time to put our heads down

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<v Speaker 1>in a down market and and really, you know, make

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<v Speaker 1>projects that will last. Well. That's a catchy phrase that's

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<v Speaker 1>often used by the crypto industry folks after they've had

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<v Speaker 1>a massive implotion like the one we just had in

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<v Speaker 1>which Crypto Exchange f t X filed for bankruptcy after

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<v Speaker 1>withdrawals first stopped and the company's very well known CEO,

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<v Speaker 1>Sam Bankman Free resigned. Now here's the problem. There have

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<v Speaker 1>been many times to rebuild this year. We've had many

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<v Speaker 1>implotions this year, and so the skeptic could be forgiven

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<v Speaker 1>for asking exactly what are we going to rebuild? Well,

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<v Speaker 1>here to help me answer that question today is Bloomberg

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<v Speaker 1>crypto blogger and Malina called I guess in crypto the

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<v Speaker 1>thing to be wary of is people flashing about the

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<v Speaker 1>money and saying, we have this bitch around to invest

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<v Speaker 1>in companies, or we're going to save that one, We're

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<v Speaker 1>going to save that one um and actually that not

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<v Speaker 1>happening in the end. So we keep hearing this phrase again,

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<v Speaker 1>you know, the refrain of it's time to build or

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<v Speaker 1>it's time to rebuild um, whichever you prefer. But the

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<v Speaker 1>question is build exactly. It's often the phrase that you

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<v Speaker 1>hear in crypto, right like It's always like when when

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<v Speaker 1>you get into the dull drums of the market, it's

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<v Speaker 1>the time that crypto should be focusing on rebuilding itself

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<v Speaker 1>but also coming up with the most innovative new things

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<v Speaker 1>that will lead the next bull market. So it was

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<v Speaker 1>often said at the beginning of this year that, for example,

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<v Speaker 1>some of crypto's biggest companies were founded in the last

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<v Speaker 1>bear market. And it's what even some of the sector's

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<v Speaker 1>largest spectra capitalists like Andrews and horrow It's are very

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<v Speaker 1>big proponents of They talk about things like hype cycles

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<v Speaker 1>and they show fancy looking diagrams where they say like

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<v Speaker 1>we're in our fourth or fifth hype cycle. I think

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<v Speaker 1>we are half for crypto, UM and and so like

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<v Speaker 1>it's in these moments where crypto seems we've beaten down

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<v Speaker 1>that actually it's where at least as investors they can

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<v Speaker 1>see projects that might be the biggest giants for the

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<v Speaker 1>next one and so UM, I guess there's both a

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<v Speaker 1>means of trying to keep the street alive but also

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<v Speaker 1>trying to keep morale going. UM. That's why we hear

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<v Speaker 1>this phrase repeated so often. It reminds me a little

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<v Speaker 1>bit of like almost I think it's almost twenty years

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<v Speaker 1>ago you had you know, dot com mania that gave

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<v Speaker 1>way to this ginormous bust in two thousand and one,

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<v Speaker 1>two thousand and two. Is this two thousand for tech

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<v Speaker 1>and crypto? I mean for some sectors of the tech market. Absolutely,

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<v Speaker 1>it's it's a hundred percent of bubble this first thing,

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<v Speaker 1>and then you get companies like Facebook, um, Twitter, Is

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<v Speaker 1>that what they're going for? Is that the kind of

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<v Speaker 1>movement that the end raising Horowitz is see here a

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<v Speaker 1>repeat of that pattern where this is where the really

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<v Speaker 1>good companies get built. When you know, not just anybody

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<v Speaker 1>can get money, but but only the best kind of

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<v Speaker 1>the weeds get separated from the chaff, if you will. Yeah,

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<v Speaker 1>I think like the I mean, they probably wouldn't like

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<v Speaker 1>to say that this, this bare market is like the

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<v Speaker 1>dot com like boom and bust in the the I

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<v Speaker 1>doubt they'd want to admit just how many companies might

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<v Speaker 1>go under in this period, and a lot of this

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<v Speaker 1>this initial like buzz around time to build was happening

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<v Speaker 1>at the very beginning when we were just seeing prices

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<v Speaker 1>falling but fewer bankruptcies. Um. But in trying to kind

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<v Speaker 1>of pinpoint the next big bet, this is obviously the

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<v Speaker 1>best time for investors to be really thinking about due

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<v Speaker 1>diligence and making investment decisions that are more predicated on

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<v Speaker 1>you know, what is the potential revenue of this product,

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<v Speaker 1>what is the potential profit of this product, rather than

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<v Speaker 1>um moonshot bets where you're just like, oh, we'll ask

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<v Speaker 1>to a couple of hundred thousand dollars in this thing

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<v Speaker 1>and see what happens, and if I lose it, I

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<v Speaker 1>lose it. It's fine. That's the mentality that you see

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<v Speaker 1>during a ball market. So if we're operating on the

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<v Speaker 1>assumption that not a hell of a lot of crypto

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<v Speaker 1>projects are hugely profitable right now. So the money where

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<v Speaker 1>is it coming from? It's the see is it elsewhere?

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<v Speaker 1>What are the vcs doing well? Investment in products so

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<v Speaker 1>far this year has been falling quite a lot. I

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<v Speaker 1>think this year in particular is the first year where

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<v Speaker 1>we're seeing VC gets truly burned by the crypto investments

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<v Speaker 1>they've made. Probably in previous because they didn't have as

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<v Speaker 1>much exposure and they were still thinking about segments like

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<v Speaker 1>tech and engineering and I don't know, like investing in

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<v Speaker 1>the next robin Hood or Airbnb um, and so there's

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<v Speaker 1>obviously going to be a lot more caution now around

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<v Speaker 1>how they can really value the investments that they make.

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<v Speaker 1>In the last few months or so, we've seen VC

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<v Speaker 1>investment in cryptso really really plummet. Only several segments are

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<v Speaker 1>really kind of holding up in that respect, like blockchain gaming,

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<v Speaker 1>And my my thesis on that is just because those

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<v Speaker 1>are segments that are more consumer focused, consumer facing, and

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<v Speaker 1>so you don't necessarily have to be convincing a gamer

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<v Speaker 1>on their Xbox that the blockchain under this is really

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<v Speaker 1>going to change the way they do something, and you

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<v Speaker 1>have to go through these weird technical loopholes to get

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<v Speaker 1>to the product and make that business successful compared to

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<v Speaker 1>if you're trying to sell them like a defy landing platform. Yeah. Well,

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<v Speaker 1>I want to come back to the sort of the

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<v Speaker 1>taking the VC perspectives. So if I'm Sequoia, I just

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<v Speaker 1>wrote off more than two million dollars worth of FDx investment,

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<v Speaker 1>I mean, these are these are the people that these

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<v Speaker 1>are the smartest people in the room supposedly. I mean,

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<v Speaker 1>if I am Sequoia and I got burned to that extent,

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<v Speaker 1>surely you have to be thinking, I Am going to

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<v Speaker 1>put so much due diligence into my next bet. What

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<v Speaker 1>do you think is going through their minds right now

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<v Speaker 1>as they look on this space. Yes, there are probably

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<v Speaker 1>bargains to be had, but you really want to make

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<v Speaker 1>sure that you got it right this time, wouldn't you. Yeah,

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<v Speaker 1>we've definitely even been seeing this before companies like ft

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<v Speaker 1>X collapsed. So for example, in the UK, the is

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<v Speaker 1>a really big crypto technology company called Copper which develops

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<v Speaker 1>systems for those you cans do trading in crypto um

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<v Speaker 1>so they deal more with the institutions than anybody in retail.

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<v Speaker 1>But even for them, they started raising their latest funding

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<v Speaker 1>around late last year, so even when the ball market

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<v Speaker 1>was still alive UM and they didn't need they didn't

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<v Speaker 1>really close any funding until part way through this year.

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<v Speaker 1>And the reason being for that is that investors wanted

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<v Speaker 1>more due diligence than they wanted to be more sure

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<v Speaker 1>about the company they were investing in. And even now,

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<v Speaker 1>when we hear the horror stories about some of the

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<v Speaker 1>companies that did go bust and the kinds of due

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<v Speaker 1>diligence they gave to their investors, like one big hedge

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<v Speaker 1>fund who just gave their investors a single piece of

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<v Speaker 1>paper with a line on saying we have X amount

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<v Speaker 1>of money. That's all you need to know. These are

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<v Speaker 1>the kinds of like horror stories that bcs are now

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<v Speaker 1>trying to avoid. And particularly with FTX being an industry

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<v Speaker 1>darling and the way it was UM, it's definitely a

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<v Speaker 1>lesson learned. But that's not to say is not still

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<v Speaker 1>money out there. A lot of these vcs have now

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<v Speaker 1>raised funds that are specifically to invest in crypto UM

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<v Speaker 1>Yeah andres and Horrowitz Paradigm. These are all funds that

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<v Speaker 1>have billions of dollars of capital ready to deploy just

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<v Speaker 1>for crypto investments, and so to a certain extent, yes,

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<v Speaker 1>they'll be more careful about how they do it. Maybe

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<v Speaker 1>the pace of investing will slow, but the money is

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<v Speaker 1>still there and still needs to be spent somehow UM,

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<v Speaker 1>and so that's why we'll still continue to see at

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<v Speaker 1>least some form of industry going forward. The original vision

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<v Speaker 1>here was, Hey, we're going to build a more fair

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<v Speaker 1>and transparent alternative financial system for the little guy. And

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<v Speaker 1>then you look at this year crypto lenders getting wiped out,

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<v Speaker 1>FTX getting wiped out, you know, people with tons of

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<v Speaker 1>money on these platforms frozen locked in UM. Are we

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<v Speaker 1>then walking away from that or is that just kind

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<v Speaker 1>of like put on hold for now? Where do you

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<v Speaker 1>see that going? There's obviously still a little bit of

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<v Speaker 1>development happening in the in the realm of crypto and

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<v Speaker 1>wanting to become the next banking system or payment system,

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<v Speaker 1>because there are still very large companies who sole ethos

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<v Speaker 1>is to make that happen. If we think about companies

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<v Speaker 1>like Circle, for example, which issues the the usdc UM

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<v Speaker 1>stable coin UM, that's a company that is very clear

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<v Speaker 1>in its dreams and wants to be, you know, not

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<v Speaker 1>necessarily a bank, but a payment rail that everybody can

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<v Speaker 1>rely on and use their token the same way you

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<v Speaker 1>might spend just with like contactless payments in a shop. Um.

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<v Speaker 1>But just because those are in existence doesn't mean that

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<v Speaker 1>that the mission is going smoothly, and it's even going

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<v Speaker 1>to go any faster, and particularly now that we have

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<v Speaker 1>regulators coming on the scene and taking even harsher looks

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<v Speaker 1>than we thought were. I mean, we were looking pretty

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<v Speaker 1>clearly at crypto before, and now it's even more intense. Um,

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<v Speaker 1>it's going to be even tougher for a company to

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<v Speaker 1>convince the SEC or the CFTC or the Federal Reserve

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<v Speaker 1>that these are products that they should allow within that

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<v Speaker 1>regulated sphere. And then you have Neil Cascari from the

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<v Speaker 1>the FED, the New York Fed um with his tweet

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<v Speaker 1>on Friday basically crypto is pointless. You know, when you

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<v Speaker 1>hear that from a FED official, I'm guessing. I mean,

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<v Speaker 1>my thinking is you're not going to again. You know,

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<v Speaker 1>like these are pretty strong statements there. There is no

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<v Speaker 1>point in this, basically is what he said. It has

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<v Speaker 1>failed all the the functions that it was supposed to serve.

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<v Speaker 1>It has failed in I mean, if you're a bank again,

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<v Speaker 1>what are you thinking? Yeah, I think in the in

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<v Speaker 1>this time in particular, what we hear from regulators most

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<v Speaker 1>often is that crypto itself has proven that it has

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<v Speaker 1>very little intrinsic value and so therefore it should be

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<v Speaker 1>treated as a speculative asset that it is, and you

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<v Speaker 1>should be prepared to lose all your money. But there

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<v Speaker 1>is still this idea that perhaps blockchain technology distributed ledger

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<v Speaker 1>technology has some kind of benefit benefit for banks in future.

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<v Speaker 1>That depends on where you are. So for example, in

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<v Speaker 1>the UK, we have a very good, faster payment system

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<v Speaker 1>and so the appeal of something like instant payments with

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<v Speaker 1>blockchain doesn't necessarily work out for us because we already

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<v Speaker 1>have that. But in the US, where banking systems are

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<v Speaker 1>quite slow, they take a lot of time. There has

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<v Speaker 1>to be a lot of intermediaries. That's still a massive cell,

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<v Speaker 1>and that might be why we see in the coming

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<v Speaker 1>months and years um a lot more attention on things

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<v Speaker 1>like Central Bank digital guarantees, where the FED can access

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<v Speaker 1>all the benefits of blockchain but control it all within itself. Unfortunately,

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<v Speaker 1>the track record of the FED is to do everything

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<v Speaker 1>very slowly, so who knows when they will actually arrive.

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<v Speaker 1>We'll be right back with m and Nicole for more

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<v Speaker 1>on the crypto rebuilding process. All right, then, so let's

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<v Speaker 1>turn to the eight hundred pound gorilla in the arena, Finance,

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<v Speaker 1>or rather their CEO. What are they or what is he?

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<v Speaker 1>What is he z? What is he up to? He's

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<v Speaker 1>up to quite a lot of the minute, actually, I

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<v Speaker 1>mean by the time this podcast episode comes out. Who

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<v Speaker 1>knows whether what I'll say or will be outdated. Um,

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<v Speaker 1>But from what we've heard from him so far, he

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<v Speaker 1>is fast becoming the savior of the industry, or at

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<v Speaker 1>least that's how Finance is positioning itself. There is potentially

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<v Speaker 1>a rescue fund on its way for crypto projects that

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<v Speaker 1>are ailing sea. You've talked about launching a crypto recovery fund.

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<v Speaker 1>Where are you on that. There's being back and forth

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<v Speaker 1>on how to structure that. Do we make it at

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<v Speaker 1>a loose fund or do we make it an actual

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<v Speaker 1>fund fund. I think we're kind of going with a

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<v Speaker 1>loose approach where in a different industry players will just contribute. Um.

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<v Speaker 1>We've also reported at Bloomberg that Binance was in discussion

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<v Speaker 1>is at least for helping out Genesis with its one

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<v Speaker 1>billion loan that it's after UM. Not yet clear whether

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<v Speaker 1>Binance will actually participate in that, but in all areas,

0:13:11.679 --> 0:13:15.040
<v Speaker 1>it seems finance is keen to portray itself as the

0:13:15.040 --> 0:13:17.720
<v Speaker 1>the one exchange that is healthy, the one exchange that

0:13:17.880 --> 0:13:21.000
<v Speaker 1>is is still there for investors um, and the one

0:13:21.040 --> 0:13:23.200
<v Speaker 1>exchange with all the money to put the bill for

0:13:23.320 --> 0:13:26.800
<v Speaker 1>things like this. And we warned this about actually FDx

0:13:26.840 --> 0:13:29.040
<v Speaker 1>back in the summer and all the investments that sand

0:13:29.040 --> 0:13:31.760
<v Speaker 1>bankwin Freed was making. The problem is when you have

0:13:32.240 --> 0:13:35.120
<v Speaker 1>one company that is becoming that lender of last resort

0:13:35.240 --> 0:13:40.800
<v Speaker 1>type of investor UM, the anti competitive behavior in that

0:13:41.480 --> 0:13:44.520
<v Speaker 1>is quite striking. You might end up having a real

0:13:44.640 --> 0:13:47.839
<v Speaker 1>true monopoly on your hands, especially in an industry where

0:13:47.880 --> 0:13:49.920
<v Speaker 1>there is no regulation at present, and so there is

0:13:49.960 --> 0:13:54.640
<v Speaker 1>nobody to step in and say no, you can't do that, sorry, yeah,

0:13:54.840 --> 0:13:58.440
<v Speaker 1>And and so now like the biggest player, the giant

0:13:58.480 --> 0:14:02.000
<v Speaker 1>player in this industry becomes essentially the gatekeeper, if you will.

0:14:02.200 --> 0:14:06.000
<v Speaker 1>Although c said has been trying to, I guess, strike

0:14:06.080 --> 0:14:11.680
<v Speaker 1>that balance between centralization and decentralization, but his pictures also

0:14:12.480 --> 0:14:16.000
<v Speaker 1>to what you were speaking about before. His pictures also

0:14:16.240 --> 0:14:19.680
<v Speaker 1>this idea of Hey, there are a lot of small

0:14:19.880 --> 0:14:23.560
<v Speaker 1>promising projects plodding away out there. We might not know

0:14:23.600 --> 0:14:27.720
<v Speaker 1>who they are, but they're good and they have sound technology.

0:14:28.000 --> 0:14:31.000
<v Speaker 1>They're just short of cash. Is that is that sort

0:14:31.040 --> 0:14:34.120
<v Speaker 1>of like is that a reasonable proposition right now? I

0:14:34.160 --> 0:14:36.480
<v Speaker 1>guess it is, with VCS kind of being a little

0:14:36.480 --> 0:14:40.240
<v Speaker 1>bit stingy. Yeah, I mean, obviously I wouldn't profess to

0:14:40.280 --> 0:14:42.680
<v Speaker 1>know much about how much due diligence finance does on

0:14:42.720 --> 0:14:44.760
<v Speaker 1>its investments, and he did make it very clear that

0:14:45.560 --> 0:14:47.840
<v Speaker 1>the kinds of companies that he would be willing to

0:14:47.880 --> 0:14:50.040
<v Speaker 1>back through this rescue fund would be ones that are,

0:14:50.080 --> 0:14:53.800
<v Speaker 1>for example, profitable, which should mean that they should already

0:14:53.840 --> 0:14:56.960
<v Speaker 1>have some kind of provable business model UM, which is

0:14:57.000 --> 0:14:59.760
<v Speaker 1>actually something that's quite difficult to achieve in crypto sometimes.

0:15:00.800 --> 0:15:04.000
<v Speaker 1>But the main issue with if if that does push

0:15:04.000 --> 0:15:07.400
<v Speaker 1>your head is that, um, if finance then ends up

0:15:07.440 --> 0:15:09.400
<v Speaker 1>being the one that holds all the cards, does that

0:15:09.440 --> 0:15:11.840
<v Speaker 1>mean that finance holds a monopoly not just over you know,

0:15:11.920 --> 0:15:15.360
<v Speaker 1>where investors are training as an exchange, but also in

0:15:15.400 --> 0:15:20.000
<v Speaker 1>the technology that might be underpinning everything else. Um. And additionally,

0:15:20.080 --> 0:15:22.400
<v Speaker 1>on top of that as well, you know a lot

0:15:22.440 --> 0:15:25.640
<v Speaker 1>of these times, we've seen finance and others come out

0:15:25.680 --> 0:15:27.560
<v Speaker 1>and say yes, we're going to invest in this company,

0:15:27.600 --> 0:15:29.800
<v Speaker 1>We're going to save that one, and then a few

0:15:29.840 --> 0:15:33.640
<v Speaker 1>days later, like we saw the FDXT, the deal falls away,

0:15:33.800 --> 0:15:36.880
<v Speaker 1>nothing happens. And I guess in crypto the thing to

0:15:36.920 --> 0:15:39.840
<v Speaker 1>be wary of is people flashing about the money and

0:15:39.920 --> 0:15:42.920
<v Speaker 1>saying we have this much around to invest in companies,

0:15:43.040 --> 0:15:44.440
<v Speaker 1>or we're going to save that one, We're going to

0:15:44.520 --> 0:15:47.360
<v Speaker 1>save that one, um, and actually that not happening in

0:15:47.400 --> 0:15:49.960
<v Speaker 1>the end. But now it's all about trying to build

0:15:49.960 --> 0:15:53.320
<v Speaker 1>things that can either make those more palatable to a

0:15:53.360 --> 0:15:57.360
<v Speaker 1>general audience, so improving the user experience um making it

0:15:57.440 --> 0:16:01.000
<v Speaker 1>more easy to have a crypto wallet, for example, Or

0:16:01.120 --> 0:16:07.400
<v Speaker 1>it's things about just trying to use crypto incentives, crypto technology, blockchain, etcetera.

0:16:07.720 --> 0:16:12.120
<v Speaker 1>As underlying they is to improve general appetite products. So

0:16:12.200 --> 0:16:14.400
<v Speaker 1>you know, maybe we'll see something like an Airbnb on

0:16:14.440 --> 0:16:19.520
<v Speaker 1>the blockchain one day. That would be fun. I'm not

0:16:19.560 --> 0:16:21.000
<v Speaker 1>really sure there's a use for it, but you know

0:16:21.600 --> 0:16:25.120
<v Speaker 1>that's the goal. Well, I guess, I guess you know.

0:16:25.240 --> 0:16:27.920
<v Speaker 1>The If there is one thing that history teaches us

0:16:28.040 --> 0:16:31.360
<v Speaker 1>is these as we talked about in the start of

0:16:31.400 --> 0:16:37.040
<v Speaker 1>this conversation. Um, you never know at the time at

0:16:37.080 --> 0:16:39.720
<v Speaker 1>times zero, I guess that's where we are. We're sort

0:16:39.760 --> 0:16:41.560
<v Speaker 1>of it feels like we're time zero now, where the

0:16:41.560 --> 0:16:44.640
<v Speaker 1>industry is doing its best to wipe itself out and

0:16:44.920 --> 0:16:47.600
<v Speaker 1>we're in this. We don't know what it's going to

0:16:47.680 --> 0:16:51.280
<v Speaker 1>look like. But there might be something we didn't know

0:16:51.400 --> 0:16:53.400
<v Speaker 1>in two thousand and two that there was going to

0:16:53.440 --> 0:16:57.280
<v Speaker 1>be appetite for something like social media friends, and we

0:16:57.360 --> 0:16:59.720
<v Speaker 1>might just we might just not have guessed at what

0:16:59.840 --> 0:17:03.080
<v Speaker 1>the application where the real killer application is here? Is

0:17:03.120 --> 0:17:05.320
<v Speaker 1>that fair to say? Yeah? But then if we think

0:17:05.359 --> 0:17:07.160
<v Speaker 1>back to what I was saying earlier about how vcs

0:17:07.200 --> 0:17:09.879
<v Speaker 1>have less of an appetite now, the moon shot be

0:17:10.720 --> 0:17:13.080
<v Speaker 1>that that is the problem. I guess. In order to

0:17:13.119 --> 0:17:15.040
<v Speaker 1>be able to predict what it is that might be

0:17:15.080 --> 0:17:17.760
<v Speaker 1>the next version of social media, you have to have

0:17:17.800 --> 0:17:22.160
<v Speaker 1>a fairly high risk tolerance for making bets that may

0:17:22.160 --> 0:17:25.280
<v Speaker 1>not pan out. Um. And if anything, actually, even if

0:17:25.280 --> 0:17:28.040
<v Speaker 1>we look outside of crypto and look at Facebook changing

0:17:28.040 --> 0:17:30.400
<v Speaker 1>its name to Mesa and all the investment that they've

0:17:30.440 --> 0:17:34.560
<v Speaker 1>put into the metaverse so far, um it has it

0:17:34.600 --> 0:17:37.240
<v Speaker 1>has yet to pay off. I mean they won't shareholds

0:17:37.280 --> 0:17:39.119
<v Speaker 1>of that. They said that we don't expect this to

0:17:39.160 --> 0:17:41.680
<v Speaker 1>really be something that you'll actually see any profit from

0:17:41.760 --> 0:17:45.880
<v Speaker 1>for several years. Yeah, I don't see myself hanging out

0:17:45.880 --> 0:17:50.760
<v Speaker 1>in the metaverse just yet. Um, but we can sort

0:17:50.800 --> 0:17:54.880
<v Speaker 1>of finish at that thought. They well, Web two started

0:17:54.920 --> 0:17:59.280
<v Speaker 1>with Facebook. Well, well, Web three start with meta And

0:17:59.320 --> 0:18:03.600
<v Speaker 1>I think that that is a topic for another time.

0:18:04.880 --> 0:18:07.080
<v Speaker 1>But I guess the future will tell and we're going

0:18:07.119 --> 0:18:09.800
<v Speaker 1>to be here to cover it, aren't we A many indeed,

0:18:10.560 --> 0:18:14.960
<v Speaker 1>Thank you, Thank you. Can find more of mny colts

0:18:15.000 --> 0:18:19.000
<v Speaker 1>reporting on the Bloomberg terminal and on Bloomberg dot com.

0:18:19.040 --> 0:18:22.240
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0:18:22.440 --> 0:18:31.160
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