Speaker 1: This is Bloomberg Crypto Daily Bloomberghart Podcast, and this is
Speaker 1: Katie greifeld In today for Stacy Marie Ishmail. It's Thursday,
Speaker 1: November seventeen. This week on the podcast, we've attempted to
Speaker 1: unpack the spectacular downfall of one of the biggest crypto
Speaker 1: exchanges in the industry and how it's possibly changed the
Speaker 1: sector forever. A month ago, if someone would have told
Speaker 1: us f t X was potentially mismanaging customer funds, funneling
Speaker 1: money into its sister trading firm, Alimator Research, and would
Speaker 1: soon be the disgrace of the crypto industry, we wouldn't
Speaker 1: have believed them. As more details about its general finances emerged,
Speaker 1: we're starting to better understand how f t X and
Speaker 1: its former CEO Sam bankman Fried might have managed to
Speaker 1: change the industry forever. But how much of a mess
Speaker 1: was f t X in, How did nobody notice? And
Speaker 1: how can this shape the future of crypto? To make
Speaker 1: sense of what this could all mean, I'm joined by
Speaker 1: Bloomberg reporter vil Donna Hirich. When we speak to people,
Speaker 1: to crypto investors or whoever, traders, a lot of them
Speaker 1: are saying Oh, this is actually like a very scary
Speaker 1: moment for crypto and we're going to interview Bloomberg opinion
Speaker 1: columnist Matt Levin. Classically, the way you get into this
Speaker 1: situation is like one trade goes wrong and you're like,
Speaker 1: we can make this up, and then it sort of
Speaker 1: snowballs from there. Hi, Matt, Hi don I'm here too.
Speaker 1: Hey Hill Toma, what are you doing there? But if
Speaker 1: we wanted to dive right in and thank you by
Speaker 1: the way for being here, thanks for having me. You
Speaker 1: are like the pre eminent voice here on what's going on,
Speaker 1: I feel like everybody's already here. You don't have to
Speaker 1: flatter Sorry, sorry, I have to. I have to. I'm
Speaker 1: a big fan. But just to start, maybe you can
Speaker 1: just give us your take overall what And I know
Speaker 1: we've all been talking about this like non stuff, but
Speaker 1: from your point of view, what actually happened? I still
Speaker 1: don't know. I mean, like, in rough sense, is what
Speaker 1: happened is that fd X disclose that it didn't have
Speaker 1: a lot of customer balances, and that's really bad. I mean,
Speaker 1: I guess what happened first of all is that customers
Speaker 1: withdrew a lot of money from fd X, and then
Speaker 1: ft X shut down with drills because it didn't have
Speaker 1: it's customers money. Um. But beyond that, the question of
Speaker 1: where did the customers money go? It still seems very
Speaker 1: much up in the air. The sort of rough sense
Speaker 1: is that ft X is affiliated hedge fund Alameda somehow
Speaker 1: lost that money, but what it did to lose that
Speaker 1: money is pretty unclear. There's talk of put a lot
Speaker 1: of money into venture investments, put a lot of money
Speaker 1: into rescuing you know, busted to affirms this summer in
Speaker 1: ways that might have lost some of that money. Um.
Speaker 1: But it's also you know, it's a leverage hedge fund,
Speaker 1: and there are a lot of ways to lose money
Speaker 1: leverage position in crypto this year, so it could have
Speaker 1: lost money that way, and you know there are other
Speaker 1: more complicated speculations, but those are some guesses. So I've
Speaker 1: read everything that you've ever written. This past week especially
Speaker 1: you've written a lot on the balance sheet that was
Speaker 1: first reported by the Financial Times over the weekends. I
Speaker 1: feel like you did a really beautiful takedown. The big
Speaker 1: numbers to know, I believe it was nine billion dollars
Speaker 1: in liabilities, like nine million in actual liquid assets, uh.
Speaker 1: And you pointed out that back when I don't know,
Speaker 1: last week, when we were so young, just talking about
Speaker 1: the f t T token, you made the point that
Speaker 1: it seems like some of their main assets were in
Speaker 1: a token that they made up. But what that reporting
Speaker 1: revealed by the Financial Times was that actually there's two.
Speaker 1: There's more than two. I mean, right, there's the balance
Speaker 1: sheet that we're talking about is something that f t
Speaker 1: X was circulating as it was sort of in its
Speaker 1: death throws, trying to stay about bankruptcy by getting an investment.
Speaker 1: So I think that, loosely speaking, what happened is that
Speaker 1: there are customer withdraws, and everything that they had that
Speaker 1: was valuable they sold or paid out to customers. So
Speaker 1: something like five billion dollars worth of bigcoin and dollars
Speaker 1: and whatever else went out the door, and what was
Speaker 1: left by the time they prepared that balance sheet was
Speaker 1: it was the weird stuff. Tell us about the weird stuff.
Speaker 1: I want to know about the weird. So there's a
Speaker 1: lot of weird stuff, including a position on Twitter that
Speaker 1: nobody quite understands, like do they have a position in
Speaker 1: Elon Must's Twitter? Um clear, But the bulk of the
Speaker 1: weird stuff is a basically these f t X related tokens.
Speaker 1: So there's f t T which is the utility token
Speaker 1: of f t X, which basically it's not exactly stock
Speaker 1: in ft X, but it's kind of like stock in
Speaker 1: the ft X exchange. Right, if you buy that token,
Speaker 1: they will buy it back out of cash flow of
Speaker 1: ft X, so it's kind of like the stock of FTEX.
Speaker 1: There's a token called Serum, which is the not face,
Speaker 1: although it isn't that what all alexis. We're interrupted. I
Speaker 1: will tell you that Sirium is run by a thing
Speaker 1: called the Serum Foundation. If you and if you google
Speaker 1: Serum Foundation, it's all makeup. It's not at all contents
Speaker 1: of the Serum Foundation. But the Sirium is like the
Speaker 1: same thing. It's it's the token of a thing, a
Speaker 1: decentralized exchange protocol called Serum, which was started by a
Speaker 1: built by f t X and Alibata, and it was
Speaker 1: sort of like, you know, people want to trade on
Speaker 1: decentralized exchanges, and ft X is the centralized exchange, and
Speaker 1: so this is like it's like decentralized counterparts. So what
Speaker 1: that means is like there's a Serium token. It trades
Speaker 1: a little, it doesn't trade that much, and they have
Speaker 1: like all of it, and they have the giant pile
Speaker 1: of it on their balance sheet that has more than
Speaker 1: all of the serrium and circulation. And there's just called
Speaker 1: maps which is the token of a different thing called
Speaker 1: maps dot me, which I will take no further questions
Speaker 1: about what maps dot me does. But there was a
Speaker 1: third one to but like there's like three million dollars
Speaker 1: of maps dot me and and they had like million
Speaker 1: dollars of it on their balance sheet, so like way
Speaker 1: more than there is maps dot me. And they were
Speaker 1: acclaiming that as an asset on the balance sheet. So
Speaker 1: if you add up all the assets and subtract all
Speaker 1: the liabilities, like you get slightly more assets than my abilities.
Speaker 1: But then if you like poke those assets a little bit,
Speaker 1: they fall apart. Okay, can we poke at the assets?
Speaker 1: Because as Katie said, so everybody should go and read
Speaker 1: this first before they even listened to the rest of
Speaker 1: this interview, because you did such a thorough breakdown of
Speaker 1: what exactly was on their balance sheet. So maybe can
Speaker 1: you just characterize for us, like how bad of a
Speaker 1: balance sheet was it? Uh, Like, in terms of like
Speaker 1: howling ghosts. Yeah, I said, I said a series of
Speaker 1: metaphors about how because it is it is not it
Speaker 1: is not like expressible in normal financial times. But now
Speaker 1: I mean the bal like like I want to be
Speaker 1: a little sympathetic here, because this is the balance sheet,
Speaker 1: like after they got rid of all the good stuff,
Speaker 1: this is the balance sheet of stuff they couldn't give
Speaker 1: to their customers. And it's terrible stuff, but it's it's
Speaker 1: basically it's mostly tokens that um, it's mostly a couple
Speaker 1: of things, tokens that they made up that there's no
Speaker 1: real market for, like they trade. But if they were
Speaker 1: to sell billions of dollars with the serum, they would
Speaker 1: get like, you know, kind of zero dollars for that.
Speaker 1: So like the billions of dollars is fake, not fake,
Speaker 1: but it's like not achievable. So I actually have a
Speaker 1: quote from one of your recent columns. I love it
Speaker 1: so much I'm going to read it to you. Quote.
Speaker 1: It's an Excel file full of the howling of ghosts
Speaker 1: and the shrieking of tortured souls. If you look too
Speaker 1: long at that spreadsheet, you will go insane. And that
Speaker 1: leads me neatly to. My next question is what should
Speaker 1: the balance sheet of f t X or a company
Speaker 1: like f t X, what should it have looked like. Well,
Speaker 1: it's a little hard to know, because, like you can
Speaker 1: have a simple model of the balance sheet, which is
Speaker 1: like customers put in some bitcoin or some dollars and
Speaker 1: you just hold them right and like you're in exchange,
Speaker 1: you charge fees for trading, you just hold the customer stuff,
Speaker 1: and then the customers want their stuff back, you just
Speaker 1: give it to them. I think it doesn't work that
Speaker 1: way because it is a it offers a number of products,
Speaker 1: but it offers a lot of futures, and so there's
Speaker 1: a lot of futures trading. So you're doing a lot
Speaker 1: of leveraging where you're sort of like effectively borrowing money
Speaker 1: to lend to customers, and you're doing a certain amount
Speaker 1: of barring from one customer to lend to another customer.
Speaker 1: So you can have kind of a messy balance sheet.
Speaker 1: But broadly speaking, you want to have like valuable stuff
Speaker 1: to offset your obligations to your customers, and there is
Speaker 1: just much less valuable stuff on this balance sheet then
Speaker 1: there are customer obligations. I want to talk more about
Speaker 1: serum and some of the other stuff that you've found.
Speaker 1: Can you talk about the process of how you actually
Speaker 1: went through all of this and sort of the revelations
Speaker 1: as you went, you know, line by line or whatever
Speaker 1: this process actually looks like, because I also have a
Speaker 1: quote of yours that I'm going to read to you.
Speaker 1: I love this exercise. I love it. This is so fun.
Speaker 1: Who said this? It seems bad, but it somehow keeps
Speaker 1: getting worse. And that's what you said. I believe it
Speaker 1: was in regards to sirium, and I love I love Sirium.
Speaker 1: I wish I had a metaphor for like, there's like
Speaker 1: a vigorous skinker game applied to this balance sheet. Yeah,
Speaker 1: like this this balance sheet needs some retinal am I right? Yes,
Speaker 1: someone did actually email me to be like you're you're
Speaker 1: overacting this balance This is a balance sheet with no
Speaker 1: makeup on it. Every financial institution has, like you know,
Speaker 1: some mess and they clean it up, and like you
Speaker 1: see the cleaned up version, and this is the sort
Speaker 1: of like no makeup version, and well that is true,
Speaker 1: like substantively the mess is quite bad. Um, I don't know,
Speaker 1: I mean, like candidly, what happened to me first was
Speaker 1: not that I read the balance sheet, but that I
Speaker 1: read the Financial Times article summarizing it, and they got
Speaker 1: to the point where they said, it has two point
Speaker 1: two billion dollars of sirium and the market capit sirium
Speaker 1: is eighty eight million dollars. And I thought, well, those
Speaker 1: are really bad numbers because the market cap is all
Speaker 1: of serrium and they have so much more than all
Speaker 1: of SIU. They have many times all of Syra. And
Speaker 1: so I treated that people like, well, you know, the
Speaker 1: price went down, like, no, the price didn't go down.
Speaker 1: There's like a deep conception, and the price did go down,
Speaker 1: but not that much. The deep conceptual problem, which is
Speaker 1: that they have way more serium than there is serum,
Speaker 1: because like you can, you know, you can do this
Speaker 1: like funny math, where like you have a token and
Speaker 1: you issue one percent of it for money and then
Speaker 1: you're like one percent of it was worth ten million dollars,
Speaker 1: a hundred percent of it was worth a billion dollars.
Speaker 1: But that's not really true. And the other issue with
Speaker 1: having so much of this one thing is that if
Speaker 1: they were to offload it, then it would actually push
Speaker 1: the price out, making their holdings worth even less, right, Yeah,
Speaker 1: but also like if they were to offload it, like
Speaker 1: something's gone wrong. Exterium is a sort of FTX project,
Speaker 1: and FTX we're like we're dumping all of it today.
Speaker 1: You wouldn't go down by like you know, you wouldn't
Speaker 1: like calculate the effect of liquidity. You'd be like, well,
Speaker 1: and that's worth zero, right, So it's bad. So I
Speaker 1: want to talk about the fact that f t X
Speaker 1: finance their centralized exchanges. And a counterpoint that I've seen
Speaker 1: or narrative that I've seen on Twitter recently over the
Speaker 1: past week or so, is that this is why you
Speaker 1: know you shouldn't trust centralized exchanges. And then, as you
Speaker 1: point out in a column, it kind of feels like
Speaker 1: Finance wants to be a central bank. They have this
Speaker 1: recovery fund, by the way, like of FTX, right, like
Speaker 1: this is this is like the Binance recovery fund is
Speaker 1: First of all, it's just it's just a tweet from
Speaker 1: CZ right, But like even you if you sort of
Speaker 1: like try to fill in the details with your best guess,
Speaker 1: it sort of ends up looking like what FTX was
Speaker 1: during this Well, I promised on getting to a question
Speaker 1: here because there's also been warding that you've seen huge
Speaker 1: outflows from exchanges, like billions of dollars. So I guess
Speaker 1: I want to know if we make this a binary question,
Speaker 1: where do you see the crypto industry going towards this
Speaker 1: central bank sort of route, putting more trust and exchanges
Speaker 1: such as binance we're trying to fill this void. Or
Speaker 1: do you see a world sort of like a d
Speaker 1: globalization and actual decentralization, people taking their money off of exchanges,
Speaker 1: putting them in cold storage, wanting control of their keys.
Speaker 1: It feels like we're at that precipice kind of. Yeah.
Speaker 1: I think it's really hard. I think that UM cold
Speaker 1: storage is like it's not a it's like like that's
Speaker 1: a solution for like, you know, institutions wanting to buy
Speaker 1: and hold bitcoin. But like there is this view that
Speaker 1: you're building this whole financial system and that requires trading, right,
Speaker 1: it requires exchanges. Like a lot of the people in
Speaker 1: crypto are not you know, buy and whole bitcoin and
Speaker 1: forget about it. Their page fund guys. They want to
Speaker 1: trade um and it's hard to do that if you
Speaker 1: don't have any exchanges that you trust. I think people
Speaker 1: keep claiming victory for decentralized plinance because it seems to
Speaker 1: not have some of these problems of charismatic founders losing
Speaker 1: all the money. But you know, like the liquidity there's
Speaker 1: the remains a lot smaller than on central than on
Speaker 1: centralized exchanges. And I think, you know, the user experience
Speaker 1: of that for either a retail customer or like you know,
Speaker 1: the sort of like big institutional money that people want
Speaker 1: to bring into Kryptos is I think, you know, I
Speaker 1: don't know, you want to have an entity that you're facing,
Speaker 1: So I think that's hard. And then I think, like
Speaker 1: the central bank model, I would have to think that
Speaker 1: most people trust finance less now than they did two
Speaker 1: weeks ago, not because finance did anything wrong, but because
Speaker 1: the person they trusted two weeks ago they don't trust anymore, right,
Speaker 1: Like you, it's hard to be like, oh, like the
Speaker 1: savior centralized exchange went bust, so we'll pick a new
Speaker 1: savior central It's just like seems like a crazy thing
Speaker 1: to do. Um, So I don't know, I mean, I
Speaker 1: think the central bank model, like, I think the best
Speaker 1: case is something like the central bank model, something like
Speaker 1: we're gonna trust finance and coin based on others, and
Speaker 1: we're going to do it in a vastly more regulated
Speaker 1: way where there's like some like adult supervision of all
Speaker 1: of this, so that it's not c Z saying I'm
Speaker 1: going to be the central bank. But it's like there's
Speaker 1: some sort of institutional framework in which it can be embedded.
Speaker 1: And I think that's also very far away and very
Speaker 1: hard to do. So I don't I don't know. I
Speaker 1: don't gonna answer your question like there's a lot of
Speaker 1: bad options. It sounds like if I listened to your
Speaker 1: answer though, that this just isn't the death of centralized exchanges.
Speaker 1: I don't think so. I don't think so. One thing
Speaker 1: that's very weird is that it should be very easy
Speaker 1: to write a cryptic exchange and not lose all your customers,
Speaker 1: like and and you know, I'm really about this, and
Speaker 1: I don't want to be too glib because you know
Speaker 1: the people I just keep up. But like coin base
Speaker 1: is a U S public company with an auditor balance sheet.
Speaker 1: That's pretty straightforward, right, Like they take your money and
Speaker 1: they put it somewhere and when you ask for it back,
Speaker 1: to give it back. And their business model is they
Speaker 1: charge you a lot of fees for trading, and you
Speaker 1: trade a lot, and so they make a lot of money. Right.
Speaker 1: Like that's oversimplifying in various ways, but it's like a
Speaker 1: pretty easy business, right. Um. At the Bloomberg cryptos somewhat,
Speaker 1: I interviewed SPF and said, you know, we talked a
Speaker 1: little bit about like the analysis of these acquisitions, and
Speaker 1: he said something to the effect of, like our thinking was,
Speaker 1: if we could incinerate a relatively small amount of money,
Speaker 1: we would do it. And there's a lot of ways
Speaker 1: in which that makes sense. Right. If you are the
Speaker 1: biggest player in crypto and you want the crypato ecosystem
Speaker 1: to be healthy, you would incinerate some money for the broader,
Speaker 1: like longer term purpose of keeping the ecosystem healthy. If
Speaker 1: you are a well capitalized player, that is the time
Speaker 1: to deploy capital, either because you think there will be
Speaker 1: a recovering you'll make money on it, or even if
Speaker 1: you are really incinerating money, you're at least keeping the
Speaker 1: system healthier and you know, improving your long term cash list.
Speaker 1: If you're not well capitalised, though, which it seems like
Speaker 1: they were not, then it's a terrible decision. Um, and
Speaker 1: that seems to be part of the problem. Anyways, they
Speaker 1: blewe money on buying failed crypto firms so that they
Speaker 1: didn't get back. Coming up more with Bloomberg reporter vill
Speaker 1: Donna Hirich and Bloomberg opinion columnist Matt Levine on what
Speaker 1: the FTX fallout could mean for the future of crypto.
Speaker 1: So that kind of leads me to a question I've
Speaker 1: been thinking about, and I think I've asked you this
Speaker 1: a few different times already this past few weeks. Week
Speaker 1: Uh to your point that if you were well capitalized,
Speaker 1: that's the thing to do. If you weren't, that's a
Speaker 1: terrible decision. When you think about just SPF, how we acted,
Speaker 1: what you the conversations that you've had with SPF. Do
Speaker 1: you think that this was intentionally bad decisions like intentional fraud,
Speaker 1: intentional evil, or do you think this was just hubrius
Speaker 1: someone who got over their skis. I don't know. I
Speaker 1: I you know, I've said I have talked to SBF
Speaker 1: a few times. I've I've liked I've liked him personally.
Speaker 1: I would like to think the best of everyone. I
Speaker 1: think that, um, it is hard to get into this
Speaker 1: sort of situation as like your plan, because like what's
Speaker 1: the next step of the plan? Right, like like it
Speaker 1: doesn't like this doesn't seem to have worked out great
Speaker 1: for SPF. So it just and just in general, like
Speaker 1: looking at a lot of these sort of situations, you know,
Speaker 1: loosely speaking, Um, the way you get into the situation
Speaker 1: is you get out over your skis. I mean the
Speaker 1: way you get like classically, the way you get into
Speaker 1: the situation is like one trade goes wrong and you're like,
Speaker 1: we can make this up, and then it's sort of
Speaker 1: snowballs from there to the point where you're sort of
Speaker 1: using all of your customer money. Um. I also think
Speaker 1: like looking at that like one thing that you've learned,
Speaker 1: like you noticed looking at that balance sheet is that
Speaker 1: like the processes at FTX, we're maybe not great, right,
Speaker 1: And like there was certainly like part of their media
Speaker 1: images that is a very small firm that was very
Speaker 1: profitable with very few people, and all the people were
Speaker 1: sort of like the perceptions they were all brilliant and
Speaker 1: like came from like you know, Jane Street, and like
Speaker 1: I knew a lot about trading, but they're you know,
Speaker 1: accounting and compliance functions. Seems to have been maybe less
Speaker 1: than you would want. And so one thing that SPF
Speaker 1: has tweeted and then the Terrible Balance Sheet said was
Speaker 1: that there was a hidden, mislabeled eight billion dollar gap
Speaker 1: where they just forgot about it at some level. That's
Speaker 1: hard to believe, but also I believe it, Like I mean,
Speaker 1: who among right like like like something went wrong that
Speaker 1: had something to do with sloppin us in some form, right,
Speaker 1: And I don't know exactly what that was, but they
Speaker 1: do seem to have lost track of some of their money. Well,
Speaker 1: speaking of that, if I can quote you to you again,
Speaker 1: you cannot apply ordinary arithmetic to numbers in a cell
Speaker 1: labeled hidden poorly internally labeled account in all caps. Of course,
Speaker 1: the result of adding subtracting those numbers with ordinary numbers
Speaker 1: is not a number, It is prison. Do you want
Speaker 1: to talk more about that? Not really, but like, I mean,
Speaker 1: clearly people are in legal jeopardy when they lose customer
Speaker 1: money and hidden poorly leavel all the ways. What kind
Speaker 1: of like you could imagine that being a series of
Speaker 1: understandable mistakes and still being in a lot of legal trouble.
Speaker 1: What kind of legal trouble are we talking about? As
Speaker 1: I understand it, one main kind go on. The US
Speaker 1: Attorney Office of the Southern District of New York decides
Speaker 1: to prosecute you for wire fraud. That's the main kind. Yeah,
Speaker 1: that's the biggie. I think even with a series of
Speaker 1: innocent mistakes, the U s Attorney's Office will be very
Speaker 1: interested and will not except a serious innocent mistakes. But
Speaker 1: I also think, like I don't know, you look at
Speaker 1: the evidence like your first thought is not a series
Speaker 1: of innocence. I'm not a lawyer, but I do want
Speaker 1: to talk about the fact that SPF keeps tweeting. This
Speaker 1: man is tweeting through it. It does some weird tweets,
Speaker 1: like a letter by letter. I know it sounds like
Speaker 1: a lot of time on his hands. It hasn't been
Speaker 1: going over too well on crypto twitter. It seems like
Speaker 1: no one wants this man to be tweeting. Should he
Speaker 1: be tweeting. I don't think it's doing a lot for
Speaker 1: anything to be tweeting. So I know we've been talking about,
Speaker 1: like we heard the word death of x y C
Speaker 1: a lot. Katie and I actually on this podcast have
Speaker 1: been talking about how when we speak to to pe
Speaker 1: pulled to crypto investors or whoever, traders even not just
Speaker 1: like bystanders that a lot of them are saying, Oh,
Speaker 1: this is actually like a very scary moment for crypto.
Speaker 1: And we we have actually a story from one of
Speaker 1: our producers. We want to bring her in and have
Speaker 1: her share it with you. I think you will like
Speaker 1: this and get your take and get your take on
Speaker 1: on what's going on, because she too has been talking
Speaker 1: to people about everything that's going on and how much
Speaker 1: of an issue it's been. Hi, Sharon, Hey, guys, how
Speaker 1: are you. I'm not a reporter, I'm only a producer,
Speaker 1: I mean a reporter. Yeah, but you're Matt Levine. But
Speaker 1: this is the point actually of the story that you
Speaker 1: are Matt Levin. Yeah, exactly. Um. Yes. Over the weekend
Speaker 1: I went out and I, um, I guess I should
Speaker 1: say that I'm within the age range where it's appropriate
Speaker 1: for me to hang around college seniors and anyway, I
Speaker 1: she's thirty fun oh man, um and yeah, I just
Speaker 1: slamped into these two guys and they seemed to be
Speaker 1: kind of mumbling something about f t X and SPF,
Speaker 1: and I sort of approached them and I said, oh,
Speaker 1: what do you think about this whole f t X thing.
Speaker 1: And when I told them that I worked for Bloomberg
Speaker 1: and that I specifically worked within the crypto vertical and
Speaker 1: the cryptopod, their eyes we're so wide and so lit,
Speaker 1: and they immediately asked me do you work with Matt Levine?
Speaker 1: Do you know Matt Levine? And I said, well, I
Speaker 1: don't know him personally, but yeah, but I've worked in
Speaker 1: the professional vicinity of Matt Levine. So it was really
Speaker 1: interesting just kind of like see how they were so awestruck.
Speaker 1: I felt like I was like, I just told them
Speaker 1: that I like worked with the President Barack Obama or
Speaker 1: like something to that effect. I didn't ask about Katie Kreifeld.
Speaker 1: That's right, It's right, Well I did, to be honest,
Speaker 1: I did plug crypto. I r l oh, thanks. I
Speaker 1: just renamed this podcast to the mal Levine Crypto Podcast
Speaker 1: and just a pilon Yes. But but was that the story? No,
Speaker 1: We're still getting to the to the crux of the story,
Speaker 1: because they told you some interesting things about crypto and
Speaker 1: how they're viewing the state of the market. Yeah. I
Speaker 1: I sort of asked them, like, so, what do you
Speaker 1: think like it's going to happen now, like about crypto
Speaker 1: and are you like really into the crypto world. And
Speaker 1: I mean, when you think about it, like their two
Speaker 1: year old college seniors, they're just starting to be like
Speaker 1: financially independent and they're really dipping their toes into like
Speaker 1: crypto verse, so to speak. And they seem to be
Speaker 1: really optimistic about the whole thing. Um, they did say
Speaker 1: they did acknowledge, you know, this whole FTX fallout is
Speaker 1: really disappointing. It happened, it was terrible, it caused a
Speaker 1: lot of pain. We can't disregard that. But they did
Speaker 1: also follow up with there's a lot of hope, and
Speaker 1: I don't think we should be, you know, in the
Speaker 1: position to say let's give up on crypto. So they
Speaker 1: were really kind of like optimistic about the future crypto
Speaker 1: and said let's hold on because these are essentially like
Speaker 1: growing pains about what they think is going to be
Speaker 1: like a really game changing industry. Yeah, I mean, you know,
Speaker 1: this is not the first time that I mean, it's
Speaker 1: not even the biggest exchange, but this is not the
Speaker 1: first time the biggest crypto exchange has gone down, right,
Speaker 1: I mean, like this is a recurring story. It's a
Speaker 1: sad and embarrassing story and it's you know, I do
Speaker 1: think that people you know, in twenty two would say
Speaker 1: that there is a that crypto has been more institutionalized
Speaker 1: and like the days of the biggest exchange going down
Speaker 1: because it was act or over, not that this one
Speaker 1: went down because it was that, but still and this
Speaker 1: feels like a throwback to the battle days. But um,
Speaker 1: you know, in the Battle of this people were still
Speaker 1: bullish on crypto. They you know, turned out to be right, right,
Speaker 1: I mean, like people who but bitcoin after mout Cox
Speaker 1: Coops did find uh. I don't know, I don't know.
Speaker 1: I think it's a real step back for institutionalization. I
Speaker 1: think it is like you know your question earlier, like
Speaker 1: it's just hard to know, like what the what the
Speaker 1: just like future mechanical processes for like having a crypto
Speaker 1: trading ecosystem where like I think trust and centralized exchanges
Speaker 1: has gone way down. I think like the thing to
Speaker 1: replace that is either decentralized exchanges or like regulation, and
Speaker 1: I think neither of those are kind of ready for
Speaker 1: prime time. But I don't know. If you're twenty two
Speaker 1: and you like crypto, I suppose you can still be
Speaker 1: bullish on crypto. But I will say, if you're twenty
Speaker 1: two and you like, there's a good chance you're like
Speaker 1: working at FDx right now, because they're all like children,
Speaker 1: and what kind of frustrates me, Like, I know that
Speaker 1: they were like twenty to thirty actual children, but I'm
Speaker 1: very old and he's seven, exactly. It's good to laugh.
Speaker 1: I'm almost thirty myself. I like to think that maybe
Speaker 1: I wouldn't have come up with an eight billion dollar hold,
Speaker 1: but I don't know. Maybe I would have gotten over
Speaker 1: my skis in the exact same way. It's really easy
Speaker 1: to judge from the sidelines, you know. Like one thing
Speaker 1: in financial markets is that people who are older have
Speaker 1: just seen more cycles and sort of like have a
Speaker 1: better sense of what can go wrong. I mean in theory, right,
Speaker 1: it's not always true. But another thing is like, no
Speaker 1: one's seen any cycles in crypto, right, Like everything encrypto
Speaker 1: is kind of happening for the first time. I think
Speaker 1: that entirely have been cycles, but it's like, you know,
Speaker 1: it's kind of all happening for the first time. And
Speaker 1: so on the one hand, that means that the young
Speaker 1: people are just as much as the old people at
Speaker 1: the other end, it means that there's a lot more
Speaker 1: things can go wrong, right, coming up more with Bloomberg
Speaker 1: reporter Villdanna Hirich and Bloomberg opinion columnist Matt Levine. Can
Speaker 1: I just say my whole family loves you. I know
Speaker 1: you know that this is credit podcast. That's that's really
Speaker 1: nice to hear. Um, I've, I've how much are we
Speaker 1: sharing on this podcast? Everything? I know this in part
Speaker 1: because I talked to your dad on the phone on
Speaker 1: our way to a crypto hang out. Yeah, I was there.
Speaker 1: I was there. Can we talk about the I remember
Speaker 1: it all too well. We can call him out now,
Speaker 1: we can call him right now, if you can. We
Speaker 1: talk about the fact that we did to crypto drinks
Speaker 1: last Thursday before the bankruptcy. But that was really remarkable.
Speaker 1: That felt like drinks at the end of the world.
Speaker 1: I don't know. It wasn't a bunker, but it was.
Speaker 1: It was in a cellar. It just felt where in
Speaker 1: downtown Manhattan. It felt like everyone thought it was stunned.
Speaker 1: I don't know, like out of blank faces. Yeah, at
Speaker 1: the end of the world. It's like they'll be when
Speaker 1: they listen to this. Yeah, Okay, let's sober up. Let's
Speaker 1: tie a ball on this. Matt, what is your best
Speaker 1: guess what crypto looks like down the road? Where do
Speaker 1: we go from here? What's the takeaway? I think it's
Speaker 1: really hard to know. I think that, you know, the
Speaker 1: original promise of crypto is sort of like getting away
Speaker 1: from trusting centralized institutions and putting your trust in like
Speaker 1: the code or the blockchain or decentralized exchanges or whatever.
Speaker 1: I think that what we've learned over the last year
Speaker 1: certainly is that people really want to trust and centralized institutions.
Speaker 1: That's just like more efficient, it's easier, it works to
Speaker 1: how you can have a functioning financial system. But over
Speaker 1: and over again this year you've seen that that trust
Speaker 1: has been misplaced. Uh. So I don't know where we
Speaker 1: go from there. I mean, the way that all other
Speaker 1: centralized intermediaries work is some combination of transparency and regulation, right,
Speaker 1: And you can imagine something like that coming to crypto.
Speaker 1: I mean, is bizarre that that publish its balance sheets? Right? Uh?
Speaker 1: And it is sort of reasonable that fd X tried
Speaker 1: to avoid US regulation by being in the Bahamas, because
Speaker 1: you know, US regulation of crypto is this sort of
Speaker 1: not great, but um that in hindsight that looks terrible
Speaker 1: and the more regulated exchanges do a little better. Uh So,
Speaker 1: I think that part of the answer is, like, there
Speaker 1: are ways to make trusted intermediaries more trustworthy, and you
Speaker 1: could do some of them. You could have transparency and
Speaker 1: regulation and sort of oversight boards of directors and things
Speaker 1: like that. Um, but that's not the answer that everyone
Speaker 1: in crypto wants to hear, right, And I think this
Speaker 1: will continue to be a boon for people who want
Speaker 1: true decentralization. Some of that is you know, decentralized exchange
Speaker 1: people and people and defy who say that centralized finance
Speaker 1: is bad and should use defy where you can trust
Speaker 1: the code rather than intermediaries. Some of it will be bitcoiners,
Speaker 1: right where like the bitcoiners are like all of this
Speaker 1: stuff here, this stuff is all just like the opposite
Speaker 1: of the point of crypto. The point of crypto is
Speaker 1: just bitcoin, hard money, no leverage, no trust than anyone,
Speaker 1: just you and your keys, you and your keys. And
Speaker 1: that's like, you know, unsatisfying if you're on a hedgehune
Speaker 1: and you want to be like trade and stuff all
Speaker 1: the time. But like I don't know it kind of
Speaker 1: comes out of this looking I think relatively good. This
Speaker 1: was the best thing that ever happened to me. I
Speaker 1: don't know about you, vill Donna. This is pretty fun
Speaker 1: Matt Levin show. I've never heard a better. Um. All right, great, Matt,
Speaker 1: thanks for joining us. Thank you, Matt. You can find
Speaker 1: more of all Donna, Hi, Rick and Matt Levine's work
Speaker 1: on the Bloomberg Terminal and on Bloomberg dot com. For more,
Speaker 1: be sure to check out our twice weekly newsletter, Bloomberg Crypto.
Speaker 1: M This is Bloomberg Crypto, a daily podcast from Bloomberg
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Speaker 1: suggestions for the show to Crypto at Bloomberg dot net.
Speaker 1: The supervising producer of Bloomberg Crypto is Vicky very Galina.
Speaker 1: Our senior producer is Janet Babin. Our producers are Mohammed
Speaker 1: Faruk and Sharon Barriro. Our associate producers are Ty Butler
Speaker 1: and Moses on Them. Desta wonder At is our engineer.
Speaker 1: Original music by Leo Sidrn. I'm Stacy Marie Schmal We'll
Speaker 1: be back tomorrow.