WEBVTT - Matt Levine Weighs In on the Post-FTX Crypto Ecosystem 0:00:03.440 --> 0:00:07.040 This is Bloomberg Crypto Daily Bloomberghart Podcast, and this is 0:00:07.120 --> 0:00:10.960 Katie greifeld In today for Stacy Marie Ishmail. It's Thursday, 0:00:11.119 --> 0:00:28.320 November seventeen. This week on the podcast, we've attempted to 0:00:28.440 --> 0:00:31.720 unpack the spectacular downfall of one of the biggest crypto 0:00:31.760 --> 0:00:35.000 exchanges in the industry and how it's possibly changed the 0:00:35.040 --> 0:00:39.320 sector forever. A month ago, if someone would have told 0:00:39.400 --> 0:00:43.440 us f t X was potentially mismanaging customer funds, funneling 0:00:43.440 --> 0:00:47.080 money into its sister trading firm, Alimator Research, and would 0:00:47.159 --> 0:00:50.280 soon be the disgrace of the crypto industry, we wouldn't 0:00:50.280 --> 0:00:54.240 have believed them. As more details about its general finances emerged, 0:00:54.600 --> 0:00:57.560 we're starting to better understand how f t X and 0:00:57.600 --> 0:01:01.080 its former CEO Sam bankman Fried might have managed to 0:01:01.160 --> 0:01:04.320 change the industry forever. But how much of a mess 0:01:04.360 --> 0:01:07.960 was f t X in, How did nobody notice? And 0:01:08.000 --> 0:01:10.800 how can this shape the future of crypto? To make 0:01:10.880 --> 0:01:12.679 sense of what this could all mean, I'm joined by 0:01:12.680 --> 0:01:16.000 Bloomberg reporter vil Donna Hirich. When we speak to people, 0:01:16.040 --> 0:01:18.840 to crypto investors or whoever, traders, a lot of them 0:01:18.840 --> 0:01:21.200 are saying Oh, this is actually like a very scary 0:01:21.280 --> 0:01:25.360 moment for crypto and we're going to interview Bloomberg opinion 0:01:25.400 --> 0:01:29.400 columnist Matt Levin. Classically, the way you get into this 0:01:29.440 --> 0:01:33.920 situation is like one trade goes wrong and you're like, 0:01:34.400 --> 0:01:36.480 we can make this up, and then it sort of 0:01:36.480 --> 0:01:49.480 snowballs from there. Hi, Matt, Hi don I'm here too. 0:01:50.160 --> 0:01:52.920 Hey Hill Toma, what are you doing there? But if 0:01:52.920 --> 0:01:55.760 we wanted to dive right in and thank you by 0:01:55.800 --> 0:01:58.520 the way for being here, thanks for having me. You 0:01:58.560 --> 0:02:01.760 are like the pre eminent voice here on what's going on, 0:02:01.800 --> 0:02:03.920 I feel like everybody's already here. You don't have to 0:02:03.920 --> 0:02:06.640 flatter Sorry, sorry, I have to. I have to. I'm 0:02:06.640 --> 0:02:09.600 a big fan. But just to start, maybe you can 0:02:09.639 --> 0:02:12.920 just give us your take overall what And I know 0:02:12.960 --> 0:02:15.079 we've all been talking about this like non stuff, but 0:02:15.240 --> 0:02:18.760 from your point of view, what actually happened? I still 0:02:18.800 --> 0:02:21.360 don't know. I mean, like, in rough sense, is what 0:02:21.400 --> 0:02:25.640 happened is that fd X disclose that it didn't have 0:02:25.720 --> 0:02:29.160 a lot of customer balances, and that's really bad. I mean, 0:02:29.160 --> 0:02:30.960 I guess what happened first of all is that customers 0:02:30.960 --> 0:02:32.840 withdrew a lot of money from fd X, and then 0:02:32.919 --> 0:02:35.040 ft X shut down with drills because it didn't have 0:02:36.120 --> 0:02:40.880 it's customers money. Um. But beyond that, the question of 0:02:40.880 --> 0:02:43.560 where did the customers money go? It still seems very 0:02:43.600 --> 0:02:45.919 much up in the air. The sort of rough sense 0:02:46.000 --> 0:02:50.160 is that ft X is affiliated hedge fund Alameda somehow 0:02:50.240 --> 0:02:52.600 lost that money, but what it did to lose that 0:02:52.639 --> 0:02:55.560 money is pretty unclear. There's talk of put a lot 0:02:55.600 --> 0:02:57.679 of money into venture investments, put a lot of money 0:02:57.680 --> 0:03:01.840 into rescuing you know, busted to affirms this summer in 0:03:01.960 --> 0:03:04.200 ways that might have lost some of that money. Um. 0:03:04.240 --> 0:03:06.280 But it's also you know, it's a leverage hedge fund, 0:03:06.280 --> 0:03:07.840 and there are a lot of ways to lose money 0:03:08.880 --> 0:03:11.880 leverage position in crypto this year, so it could have 0:03:11.960 --> 0:03:14.079 lost money that way, and you know there are other 0:03:14.160 --> 0:03:19.440 more complicated speculations, but those are some guesses. So I've 0:03:19.720 --> 0:03:23.840 read everything that you've ever written. This past week especially 0:03:24.240 --> 0:03:27.160 you've written a lot on the balance sheet that was 0:03:27.240 --> 0:03:31.040 first reported by the Financial Times over the weekends. I 0:03:31.040 --> 0:03:33.880 feel like you did a really beautiful takedown. The big 0:03:34.000 --> 0:03:37.320 numbers to know, I believe it was nine billion dollars 0:03:37.360 --> 0:03:43.960 in liabilities, like nine million in actual liquid assets, uh. 0:03:44.000 --> 0:03:47.680 And you pointed out that back when I don't know, 0:03:47.760 --> 0:03:49.920 last week, when we were so young, just talking about 0:03:49.920 --> 0:03:52.720 the f t T token, you made the point that 0:03:53.240 --> 0:03:55.240 it seems like some of their main assets were in 0:03:55.240 --> 0:03:58.040 a token that they made up. But what that reporting 0:03:58.080 --> 0:04:01.920 revealed by the Financial Times was that actually there's two. 0:04:02.680 --> 0:04:05.440 There's more than two. I mean, right, there's the balance 0:04:05.480 --> 0:04:07.400 sheet that we're talking about is something that f t 0:04:07.600 --> 0:04:10.680 X was circulating as it was sort of in its 0:04:10.680 --> 0:04:13.400 death throws, trying to stay about bankruptcy by getting an investment. 0:04:13.440 --> 0:04:15.800 So I think that, loosely speaking, what happened is that 0:04:15.840 --> 0:04:18.720 there are customer withdraws, and everything that they had that 0:04:18.839 --> 0:04:23.400 was valuable they sold or paid out to customers. So 0:04:23.560 --> 0:04:27.120 something like five billion dollars worth of bigcoin and dollars 0:04:27.160 --> 0:04:30.599 and whatever else went out the door, and what was 0:04:30.680 --> 0:04:32.680 left by the time they prepared that balance sheet was 0:04:33.960 --> 0:04:36.640 it was the weird stuff. Tell us about the weird stuff. 0:04:36.640 --> 0:04:37.920 I want to know about the weird. So there's a 0:04:37.920 --> 0:04:39.719 lot of weird stuff, including a position on Twitter that 0:04:39.720 --> 0:04:42.599 nobody quite understands, like do they have a position in 0:04:42.640 --> 0:04:46.479 Elon Must's Twitter? Um clear, But the bulk of the 0:04:46.480 --> 0:04:53.320 weird stuff is a basically these f t X related tokens. 0:04:53.320 --> 0:04:55.320 So there's f t T which is the utility token 0:04:55.320 --> 0:04:58.280 of f t X, which basically it's not exactly stock 0:04:58.320 --> 0:04:59.760 in ft X, but it's kind of like stock in 0:04:59.800 --> 0:05:02.200 the ft X exchange. Right, if you buy that token, 0:05:02.800 --> 0:05:04.880 they will buy it back out of cash flow of 0:05:04.920 --> 0:05:07.040 ft X, so it's kind of like the stock of FTEX. 0:05:07.360 --> 0:05:10.279 There's a token called Serum, which is the not face, 0:05:12.440 --> 0:05:17.920 although it isn't that what all alexis. We're interrupted. I 0:05:17.920 --> 0:05:19.560 will tell you that Sirium is run by a thing 0:05:19.600 --> 0:05:21.640 called the Serum Foundation. If you and if you google 0:05:21.680 --> 0:05:25.120 Serum Foundation, it's all makeup. It's not at all contents 0:05:25.160 --> 0:05:28.599 of the Serum Foundation. But the Sirium is like the 0:05:28.640 --> 0:05:32.919 same thing. It's it's the token of a thing, a 0:05:33.000 --> 0:05:36.200 decentralized exchange protocol called Serum, which was started by a 0:05:37.000 --> 0:05:39.000 built by f t X and Alibata, and it was 0:05:39.080 --> 0:05:41.400 sort of like, you know, people want to trade on 0:05:41.440 --> 0:05:45.440 decentralized exchanges, and ft X is the centralized exchange, and 0:05:45.480 --> 0:05:49.080 so this is like it's like decentralized counterparts. So what 0:05:49.120 --> 0:05:51.200 that means is like there's a Serium token. It trades 0:05:51.240 --> 0:05:53.880 a little, it doesn't trade that much, and they have 0:05:53.960 --> 0:05:56.440 like all of it, and they have the giant pile 0:05:56.440 --> 0:05:57.960 of it on their balance sheet that has more than 0:05:58.000 --> 0:06:00.320 all of the serrium and circulation. And there's just called 0:06:00.360 --> 0:06:02.680 maps which is the token of a different thing called 0:06:02.720 --> 0:06:05.760 maps dot me, which I will take no further questions 0:06:05.800 --> 0:06:08.800 about what maps dot me does. But there was a 0:06:08.839 --> 0:06:11.279 third one to but like there's like three million dollars 0:06:11.279 --> 0:06:14.400 of maps dot me and and they had like million 0:06:14.440 --> 0:06:16.320 dollars of it on their balance sheet, so like way 0:06:16.320 --> 0:06:18.919 more than there is maps dot me. And they were 0:06:18.920 --> 0:06:20.839 acclaiming that as an asset on the balance sheet. So 0:06:20.839 --> 0:06:22.640 if you add up all the assets and subtract all 0:06:22.640 --> 0:06:26.200 the liabilities, like you get slightly more assets than my abilities. 0:06:26.320 --> 0:06:28.480 But then if you like poke those assets a little bit, 0:06:28.480 --> 0:06:31.280 they fall apart. Okay, can we poke at the assets? 0:06:31.440 --> 0:06:34.480 Because as Katie said, so everybody should go and read 0:06:34.520 --> 0:06:36.760 this first before they even listened to the rest of 0:06:36.760 --> 0:06:39.719 this interview, because you did such a thorough breakdown of 0:06:39.800 --> 0:06:42.200 what exactly was on their balance sheet. So maybe can 0:06:42.240 --> 0:06:45.359 you just characterize for us, like how bad of a 0:06:45.360 --> 0:06:49.120 balance sheet was it? Uh, Like, in terms of like 0:06:49.160 --> 0:06:52.640 howling ghosts. Yeah, I said, I said a series of 0:06:52.680 --> 0:06:55.680 metaphors about how because it is it is not it 0:06:55.839 --> 0:06:59.680 is not like expressible in normal financial times. But now 0:06:59.720 --> 0:07:01.840 I mean the bal like like I want to be 0:07:01.880 --> 0:07:03.919 a little sympathetic here, because this is the balance sheet, 0:07:04.000 --> 0:07:08.279 like after they got rid of all the good stuff, 0:07:08.320 --> 0:07:10.520 this is the balance sheet of stuff they couldn't give 0:07:10.560 --> 0:07:15.160 to their customers. And it's terrible stuff, but it's it's 0:07:15.200 --> 0:07:18.320 basically it's mostly tokens that um, it's mostly a couple 0:07:18.320 --> 0:07:20.680 of things, tokens that they made up that there's no 0:07:20.760 --> 0:07:23.680 real market for, like they trade. But if they were 0:07:23.720 --> 0:07:26.160 to sell billions of dollars with the serum, they would 0:07:26.160 --> 0:07:27.880 get like, you know, kind of zero dollars for that. 0:07:28.120 --> 0:07:30.920 So like the billions of dollars is fake, not fake, 0:07:30.960 --> 0:07:34.800 but it's like not achievable. So I actually have a 0:07:34.880 --> 0:07:36.960 quote from one of your recent columns. I love it 0:07:37.000 --> 0:07:40.400 so much I'm going to read it to you. Quote. 0:07:40.640 --> 0:07:43.680 It's an Excel file full of the howling of ghosts 0:07:44.080 --> 0:07:47.119 and the shrieking of tortured souls. If you look too 0:07:47.200 --> 0:07:50.800 long at that spreadsheet, you will go insane. And that 0:07:50.880 --> 0:07:53.679 leads me neatly to. My next question is what should 0:07:54.080 --> 0:07:56.720 the balance sheet of f t X or a company 0:07:56.760 --> 0:07:59.600 like f t X, what should it have looked like. Well, 0:08:00.000 --> 0:08:01.960 it's a little hard to know, because, like you can 0:08:02.040 --> 0:08:03.680 have a simple model of the balance sheet, which is 0:08:03.880 --> 0:08:06.440 like customers put in some bitcoin or some dollars and 0:08:06.480 --> 0:08:08.880 you just hold them right and like you're in exchange, 0:08:08.920 --> 0:08:11.320 you charge fees for trading, you just hold the customer stuff, 0:08:11.320 --> 0:08:12.960 and then the customers want their stuff back, you just 0:08:13.000 --> 0:08:14.800 give it to them. I think it doesn't work that 0:08:14.840 --> 0:08:17.239 way because it is a it offers a number of products, 0:08:17.280 --> 0:08:18.800 but it offers a lot of futures, and so there's 0:08:18.800 --> 0:08:20.520 a lot of futures trading. So you're doing a lot 0:08:20.560 --> 0:08:24.320 of leveraging where you're sort of like effectively borrowing money 0:08:24.320 --> 0:08:26.320 to lend to customers, and you're doing a certain amount 0:08:26.360 --> 0:08:28.760 of barring from one customer to lend to another customer. 0:08:28.800 --> 0:08:30.840 So you can have kind of a messy balance sheet. 0:08:31.200 --> 0:08:34.600 But broadly speaking, you want to have like valuable stuff 0:08:34.920 --> 0:08:39.360 to offset your obligations to your customers, and there is 0:08:39.400 --> 0:08:43.440 just much less valuable stuff on this balance sheet then 0:08:43.480 --> 0:08:46.360 there are customer obligations. I want to talk more about 0:08:46.400 --> 0:08:48.760 serum and some of the other stuff that you've found. 0:08:49.160 --> 0:08:51.160 Can you talk about the process of how you actually 0:08:51.200 --> 0:08:54.319 went through all of this and sort of the revelations 0:08:54.440 --> 0:08:58.280 as you went, you know, line by line or whatever 0:08:58.280 --> 0:09:00.800 this process actually looks like, because I also have a 0:09:00.880 --> 0:09:02.760 quote of yours that I'm going to read to you. 0:09:03.240 --> 0:09:05.559 I love this exercise. I love it. This is so fun. 0:09:06.280 --> 0:09:10.199 Who said this? It seems bad, but it somehow keeps 0:09:10.240 --> 0:09:12.840 getting worse. And that's what you said. I believe it 0:09:12.880 --> 0:09:16.240 was in regards to sirium, and I love I love Sirium. 0:09:16.280 --> 0:09:18.520 I wish I had a metaphor for like, there's like 0:09:18.559 --> 0:09:21.680 a vigorous skinker game applied to this balance sheet. Yeah, 0:09:21.920 --> 0:09:25.000 like this this balance sheet needs some retinal am I right? Yes, 0:09:25.280 --> 0:09:28.160 someone did actually email me to be like you're you're 0:09:28.200 --> 0:09:30.160 overacting this balance This is a balance sheet with no 0:09:30.240 --> 0:09:34.120 makeup on it. Every financial institution has, like you know, 0:09:34.480 --> 0:09:36.920 some mess and they clean it up, and like you 0:09:36.960 --> 0:09:39.240 see the cleaned up version, and this is the sort 0:09:39.280 --> 0:09:41.839 of like no makeup version, and well that is true, 0:09:41.960 --> 0:09:45.440 like substantively the mess is quite bad. Um, I don't know, 0:09:45.520 --> 0:09:48.800 I mean, like candidly, what happened to me first was 0:09:48.840 --> 0:09:50.000 not that I read the balance sheet, but that I 0:09:50.040 --> 0:09:52.880 read the Financial Times article summarizing it, and they got 0:09:52.880 --> 0:09:56.000 to the point where they said, it has two point 0:09:56.080 --> 0:10:00.440 two billion dollars of sirium and the market capit sirium 0:10:00.520 --> 0:10:04.439 is eighty eight million dollars. And I thought, well, those 0:10:04.480 --> 0:10:08.400 are really bad numbers because the market cap is all 0:10:08.440 --> 0:10:11.520 of serrium and they have so much more than all 0:10:11.679 --> 0:10:14.960 of SIU. They have many times all of Syra. And 0:10:15.040 --> 0:10:17.760 so I treated that people like, well, you know, the 0:10:17.800 --> 0:10:20.120 price went down, like, no, the price didn't go down. 0:10:20.160 --> 0:10:22.760 There's like a deep conception, and the price did go down, 0:10:22.800 --> 0:10:25.240 but not that much. The deep conceptual problem, which is 0:10:25.240 --> 0:10:27.679 that they have way more serium than there is serum, 0:10:27.760 --> 0:10:32.640 because like you can, you know, you can do this 0:10:32.800 --> 0:10:36.040 like funny math, where like you have a token and 0:10:36.080 --> 0:10:38.559 you issue one percent of it for money and then 0:10:38.559 --> 0:10:40.880 you're like one percent of it was worth ten million dollars, 0:10:40.920 --> 0:10:43.000 a hundred percent of it was worth a billion dollars. 0:10:43.040 --> 0:10:45.640 But that's not really true. And the other issue with 0:10:45.920 --> 0:10:50.040 having so much of this one thing is that if 0:10:50.080 --> 0:10:53.199 they were to offload it, then it would actually push 0:10:53.240 --> 0:10:56.680 the price out, making their holdings worth even less, right, Yeah, 0:10:56.679 --> 0:10:58.640 but also like if they were to offload it, like 0:10:58.679 --> 0:11:02.240 something's gone wrong. Exterium is a sort of FTX project, 0:11:02.400 --> 0:11:04.800 and FTX we're like we're dumping all of it today. 0:11:05.200 --> 0:11:07.080 You wouldn't go down by like you know, you wouldn't 0:11:07.080 --> 0:11:09.199 like calculate the effect of liquidity. You'd be like, well, 0:11:09.240 --> 0:11:14.320 and that's worth zero, right, So it's bad. So I 0:11:14.360 --> 0:11:17.480 want to talk about the fact that f t X 0:11:17.640 --> 0:11:23.520 finance their centralized exchanges. And a counterpoint that I've seen 0:11:23.720 --> 0:11:26.360 or narrative that I've seen on Twitter recently over the 0:11:26.400 --> 0:11:28.680 past week or so, is that this is why you 0:11:28.720 --> 0:11:31.920 know you shouldn't trust centralized exchanges. And then, as you 0:11:31.960 --> 0:11:33.560 point out in a column, it kind of feels like 0:11:33.559 --> 0:11:36.920 Finance wants to be a central bank. They have this 0:11:37.160 --> 0:11:41.000 recovery fund, by the way, like of FTX, right, like 0:11:41.080 --> 0:11:43.360 this is this is like the Binance recovery fund is 0:11:44.400 --> 0:11:46.719 First of all, it's just it's just a tweet from 0:11:46.720 --> 0:11:51.520 CZ right, But like even you if you sort of 0:11:51.559 --> 0:11:53.720 like try to fill in the details with your best guess, 0:11:53.720 --> 0:11:55.599 it sort of ends up looking like what FTX was 0:11:55.679 --> 0:11:58.120 during this Well, I promised on getting to a question 0:11:58.120 --> 0:12:02.600 here because there's also been warding that you've seen huge 0:12:02.720 --> 0:12:05.840 outflows from exchanges, like billions of dollars. So I guess 0:12:06.080 --> 0:12:08.840 I want to know if we make this a binary question, 0:12:08.920 --> 0:12:11.920 where do you see the crypto industry going towards this 0:12:12.400 --> 0:12:16.120 central bank sort of route, putting more trust and exchanges 0:12:16.160 --> 0:12:18.640 such as binance we're trying to fill this void. Or 0:12:18.679 --> 0:12:21.040 do you see a world sort of like a d 0:12:21.160 --> 0:12:27.200 globalization and actual decentralization, people taking their money off of exchanges, 0:12:27.360 --> 0:12:31.160 putting them in cold storage, wanting control of their keys. 0:12:31.679 --> 0:12:35.679 It feels like we're at that precipice kind of. Yeah. 0:12:35.760 --> 0:12:38.880 I think it's really hard. I think that UM cold 0:12:38.960 --> 0:12:42.760 storage is like it's not a it's like like that's 0:12:42.800 --> 0:12:45.520 a solution for like, you know, institutions wanting to buy 0:12:45.520 --> 0:12:48.280 and hold bitcoin. But like there is this view that 0:12:48.320 --> 0:12:52.800 you're building this whole financial system and that requires trading, right, 0:12:52.840 --> 0:12:54.439 it requires exchanges. Like a lot of the people in 0:12:54.480 --> 0:12:57.560 crypto are not you know, buy and whole bitcoin and 0:12:57.600 --> 0:12:59.640 forget about it. Their page fund guys. They want to 0:12:59.640 --> 0:13:03.040 trade um and it's hard to do that if you 0:13:03.080 --> 0:13:06.600 don't have any exchanges that you trust. I think people 0:13:06.840 --> 0:13:12.800 keep claiming victory for decentralized plinance because it seems to 0:13:12.960 --> 0:13:16.839 not have some of these problems of charismatic founders losing 0:13:16.840 --> 0:13:19.959 all the money. But you know, like the liquidity there's 0:13:20.000 --> 0:13:22.440 the remains a lot smaller than on central than on 0:13:22.520 --> 0:13:26.760 centralized exchanges. And I think, you know, the user experience 0:13:26.760 --> 0:13:29.440 of that for either a retail customer or like you know, 0:13:30.280 --> 0:13:32.720 the sort of like big institutional money that people want 0:13:32.760 --> 0:13:35.640 to bring into Kryptos is I think, you know, I 0:13:35.640 --> 0:13:37.280 don't know, you want to have an entity that you're facing, 0:13:37.640 --> 0:13:39.200 So I think that's hard. And then I think, like 0:13:39.559 --> 0:13:42.760 the central bank model, I would have to think that 0:13:42.840 --> 0:13:46.320 most people trust finance less now than they did two 0:13:46.360 --> 0:13:49.480 weeks ago, not because finance did anything wrong, but because 0:13:49.559 --> 0:13:51.880 the person they trusted two weeks ago they don't trust anymore, right, 0:13:52.080 --> 0:13:54.880 Like you, it's hard to be like, oh, like the 0:13:54.960 --> 0:13:58.440 savior centralized exchange went bust, so we'll pick a new 0:13:58.520 --> 0:14:00.920 savior central It's just like seems like a crazy thing 0:14:01.000 --> 0:14:03.760 to do. Um, So I don't know, I mean, I 0:14:03.760 --> 0:14:08.120 think the central bank model, like, I think the best 0:14:08.160 --> 0:14:11.280 case is something like the central bank model, something like 0:14:11.280 --> 0:14:13.680 we're gonna trust finance and coin based on others, and 0:14:13.679 --> 0:14:17.319 we're going to do it in a vastly more regulated 0:14:17.360 --> 0:14:21.600 way where there's like some like adult supervision of all 0:14:21.640 --> 0:14:25.080 of this, so that it's not c Z saying I'm 0:14:25.080 --> 0:14:26.960 going to be the central bank. But it's like there's 0:14:27.040 --> 0:14:30.400 some sort of institutional framework in which it can be embedded. 0:14:30.600 --> 0:14:33.040 And I think that's also very far away and very 0:14:33.040 --> 0:14:34.880 hard to do. So I don't I don't know. I 0:14:34.880 --> 0:14:37.120 don't gonna answer your question like there's a lot of 0:14:37.120 --> 0:14:39.920 bad options. It sounds like if I listened to your 0:14:39.920 --> 0:14:43.120 answer though, that this just isn't the death of centralized exchanges. 0:14:44.680 --> 0:14:49.440 I don't think so. I don't think so. One thing 0:14:49.440 --> 0:14:50.920 that's very weird is that it should be very easy 0:14:50.960 --> 0:14:53.880 to write a cryptic exchange and not lose all your customers, 0:14:53.920 --> 0:14:55.880 like and and you know, I'm really about this, and 0:14:55.920 --> 0:14:58.000 I don't want to be too glib because you know 0:14:58.800 --> 0:15:01.920 the people I just keep up. But like coin base 0:15:02.080 --> 0:15:04.360 is a U S public company with an auditor balance sheet. 0:15:04.440 --> 0:15:07.440 That's pretty straightforward, right, Like they take your money and 0:15:07.480 --> 0:15:09.560 they put it somewhere and when you ask for it back, 0:15:09.560 --> 0:15:11.840 to give it back. And their business model is they 0:15:11.920 --> 0:15:13.880 charge you a lot of fees for trading, and you 0:15:13.960 --> 0:15:15.720 trade a lot, and so they make a lot of money. Right. 0:15:15.920 --> 0:15:18.280 Like that's oversimplifying in various ways, but it's like a 0:15:18.280 --> 0:15:22.440 pretty easy business, right. Um. At the Bloomberg cryptos somewhat, 0:15:22.480 --> 0:15:26.760 I interviewed SPF and said, you know, we talked a 0:15:26.800 --> 0:15:31.440 little bit about like the analysis of these acquisitions, and 0:15:31.440 --> 0:15:35.040 he said something to the effect of, like our thinking was, 0:15:35.080 --> 0:15:37.640 if we could incinerate a relatively small amount of money, 0:15:37.920 --> 0:15:41.760 we would do it. And there's a lot of ways 0:15:41.760 --> 0:15:44.680 in which that makes sense. Right. If you are the 0:15:44.680 --> 0:15:47.560 biggest player in crypto and you want the crypato ecosystem 0:15:47.600 --> 0:15:51.520 to be healthy, you would incinerate some money for the broader, 0:15:51.960 --> 0:15:55.320 like longer term purpose of keeping the ecosystem healthy. If 0:15:55.320 --> 0:15:57.760 you are a well capitalized player, that is the time 0:15:57.800 --> 0:16:00.360 to deploy capital, either because you think there will be 0:16:00.360 --> 0:16:02.320 a recovering you'll make money on it, or even if 0:16:02.320 --> 0:16:04.800 you are really incinerating money, you're at least keeping the 0:16:04.800 --> 0:16:08.760 system healthier and you know, improving your long term cash list. 0:16:09.840 --> 0:16:12.320 If you're not well capitalised, though, which it seems like 0:16:12.320 --> 0:16:14.920 they were not, then it's a terrible decision. Um, and 0:16:15.000 --> 0:16:17.440 that seems to be part of the problem. Anyways, they 0:16:17.760 --> 0:16:20.560 blewe money on buying failed crypto firms so that they 0:16:20.560 --> 0:16:23.680 didn't get back. Coming up more with Bloomberg reporter vill 0:16:23.680 --> 0:16:27.120 Donna Hirich and Bloomberg opinion columnist Matt Levine on what 0:16:27.240 --> 0:16:30.000 the FTX fallout could mean for the future of crypto. 0:16:43.640 --> 0:16:46.680 So that kind of leads me to a question I've 0:16:46.720 --> 0:16:48.320 been thinking about, and I think I've asked you this 0:16:48.400 --> 0:16:52.280 a few different times already this past few weeks. Week 0:16:52.520 --> 0:16:56.520 Uh to your point that if you were well capitalized, 0:16:57.560 --> 0:16:59.640 that's the thing to do. If you weren't, that's a 0:16:59.720 --> 0:17:05.360 terrible decision. When you think about just SPF, how we acted, 0:17:05.480 --> 0:17:08.639 what you the conversations that you've had with SPF. Do 0:17:08.680 --> 0:17:14.800 you think that this was intentionally bad decisions like intentional fraud, 0:17:14.840 --> 0:17:17.800 intentional evil, or do you think this was just hubrius 0:17:17.840 --> 0:17:21.560 someone who got over their skis. I don't know. I 0:17:21.880 --> 0:17:25.640 I you know, I've said I have talked to SBF 0:17:25.680 --> 0:17:29.320 a few times. I've I've liked I've liked him personally. 0:17:29.480 --> 0:17:32.600 I would like to think the best of everyone. I 0:17:32.640 --> 0:17:35.320 think that, um, it is hard to get into this 0:17:35.359 --> 0:17:39.600 sort of situation as like your plan, because like what's 0:17:39.640 --> 0:17:42.000 the next step of the plan? Right, like like it 0:17:42.040 --> 0:17:43.760 doesn't like this doesn't seem to have worked out great 0:17:43.760 --> 0:17:46.760 for SPF. So it just and just in general, like 0:17:46.760 --> 0:17:49.800 looking at a lot of these sort of situations, you know, 0:17:49.880 --> 0:17:53.320 loosely speaking, Um, the way you get into the situation 0:17:53.480 --> 0:17:55.520 is you get out over your skis. I mean the 0:17:55.560 --> 0:17:57.320 way you get like classically, the way you get into 0:17:57.320 --> 0:18:01.840 the situation is like one trade goes wrong and you're like, 0:18:02.400 --> 0:18:04.440 we can make this up, and then it's sort of 0:18:04.480 --> 0:18:07.280 snowballs from there to the point where you're sort of 0:18:07.320 --> 0:18:10.200 using all of your customer money. Um. I also think 0:18:10.280 --> 0:18:12.320 like looking at that like one thing that you've learned, 0:18:12.359 --> 0:18:15.360 like you noticed looking at that balance sheet is that 0:18:15.440 --> 0:18:20.640 like the processes at FTX, we're maybe not great, right, 0:18:21.080 --> 0:18:24.160 And like there was certainly like part of their media 0:18:24.160 --> 0:18:26.560 images that is a very small firm that was very 0:18:26.560 --> 0:18:30.040 profitable with very few people, and all the people were 0:18:30.080 --> 0:18:32.600 sort of like the perceptions they were all brilliant and 0:18:32.640 --> 0:18:34.760 like came from like you know, Jane Street, and like 0:18:35.119 --> 0:18:38.719 I knew a lot about trading, but they're you know, 0:18:38.880 --> 0:18:42.200 accounting and compliance functions. Seems to have been maybe less 0:18:42.240 --> 0:18:45.200 than you would want. And so one thing that SPF 0:18:45.240 --> 0:18:48.280 has tweeted and then the Terrible Balance Sheet said was 0:18:48.320 --> 0:18:51.240 that there was a hidden, mislabeled eight billion dollar gap 0:18:51.280 --> 0:18:56.640 where they just forgot about it at some level. That's 0:18:56.640 --> 0:18:59.399 hard to believe, but also I believe it, Like I mean, 0:18:59.440 --> 0:19:03.800 who among right like like like something went wrong that 0:19:04.040 --> 0:19:06.640 had something to do with sloppin us in some form, right, 0:19:06.720 --> 0:19:11.920 And I don't know exactly what that was, but they 0:19:11.960 --> 0:19:14.680 do seem to have lost track of some of their money. Well, 0:19:14.680 --> 0:19:17.119 speaking of that, if I can quote you to you again, 0:19:18.520 --> 0:19:22.040 you cannot apply ordinary arithmetic to numbers in a cell 0:19:22.160 --> 0:19:26.800 labeled hidden poorly internally labeled account in all caps. Of course, 0:19:27.400 --> 0:19:30.439 the result of adding subtracting those numbers with ordinary numbers 0:19:30.520 --> 0:19:33.880 is not a number, It is prison. Do you want 0:19:33.880 --> 0:19:38.080 to talk more about that? Not really, but like, I mean, 0:19:38.520 --> 0:19:42.240 clearly people are in legal jeopardy when they lose customer 0:19:42.280 --> 0:19:45.720 money and hidden poorly leavel all the ways. What kind 0:19:45.760 --> 0:19:49.080 of like you could imagine that being a series of 0:19:49.160 --> 0:19:52.760 understandable mistakes and still being in a lot of legal trouble. 0:19:52.920 --> 0:19:55.880 What kind of legal trouble are we talking about? As 0:19:55.920 --> 0:19:59.600 I understand it, one main kind go on. The US 0:19:59.600 --> 0:20:02.440 Attorney Office of the Southern District of New York decides 0:20:02.480 --> 0:20:07.359 to prosecute you for wire fraud. That's the main kind. Yeah, 0:20:07.400 --> 0:20:11.040 that's the biggie. I think even with a series of 0:20:11.040 --> 0:20:14.040 innocent mistakes, the U s Attorney's Office will be very 0:20:14.080 --> 0:20:18.080 interested and will not except a serious innocent mistakes. But 0:20:18.119 --> 0:20:19.959 I also think, like I don't know, you look at 0:20:19.960 --> 0:20:23.320 the evidence like your first thought is not a series 0:20:23.320 --> 0:20:25.840 of innocence. I'm not a lawyer, but I do want 0:20:25.840 --> 0:20:28.880 to talk about the fact that SPF keeps tweeting. This 0:20:28.960 --> 0:20:32.800 man is tweeting through it. It does some weird tweets, 0:20:33.280 --> 0:20:35.399 like a letter by letter. I know it sounds like 0:20:36.400 --> 0:20:38.680 a lot of time on his hands. It hasn't been 0:20:38.720 --> 0:20:40.919 going over too well on crypto twitter. It seems like 0:20:41.040 --> 0:20:43.879 no one wants this man to be tweeting. Should he 0:20:43.920 --> 0:20:46.439 be tweeting. I don't think it's doing a lot for 0:20:46.680 --> 0:20:50.600 anything to be tweeting. So I know we've been talking about, 0:20:50.600 --> 0:20:54.240 like we heard the word death of x y C 0:20:54.680 --> 0:20:56.960 a lot. Katie and I actually on this podcast have 0:20:57.000 --> 0:20:59.840 been talking about how when we speak to to pe 0:21:00.000 --> 0:21:03.800 pulled to crypto investors or whoever, traders even not just 0:21:03.840 --> 0:21:06.280 like bystanders that a lot of them are saying, Oh, 0:21:06.320 --> 0:21:09.640 this is actually like a very scary moment for crypto. 0:21:10.040 --> 0:21:12.399 And we we have actually a story from one of 0:21:12.400 --> 0:21:14.320 our producers. We want to bring her in and have 0:21:14.440 --> 0:21:16.919 her share it with you. I think you will like 0:21:17.040 --> 0:21:20.959 this and get your take and get your take on 0:21:20.960 --> 0:21:23.280 on what's going on, because she too has been talking 0:21:23.280 --> 0:21:29.080 to people about everything that's going on and how much 0:21:29.119 --> 0:21:34.320 of an issue it's been. Hi, Sharon, Hey, guys, how 0:21:34.359 --> 0:21:36.720 are you. I'm not a reporter, I'm only a producer, 0:21:37.080 --> 0:21:42.800