Speaker 1: I'm Stacy Marie Ishmael, Managing editor of Crypto for Bloomberg News,
Speaker 1: And this is Bloomberg Crypto, a daily Bloomberg I Heart podcast.
Speaker 1: It's Tuesday to line nineteen. As investors around the world
Speaker 1: grapple the reality of sustained declines and prices across crypto markets,
Speaker 1: more and more stakeholders are asking the question what's next,
Speaker 1: and in some cases, who's next. In this episode of
Speaker 1: Bloomberg Crypto, reporter Emily Nicole interviews Alston Zecha, partner at
Speaker 1: global venture fund eight Roods, for his perspective on how
Speaker 1: the crypto winter is affecting sentiment and markets. So you
Speaker 1: probably read the story that we did. It was like
Speaker 1: the two trillion has been wiped off the crypto market
Speaker 1: cap since November UM. And one of the initial questions
Speaker 1: that I posed in that article and that I wanted
Speaker 1: to put to you more deeply, is about how, um,
Speaker 1: this crypto winter is different from the ones that we've
Speaker 1: had in the past. So obviously we had a crypto
Speaker 1: winter period in and Bitcoin had experienced his own little winters,
Speaker 1: I guess before that. But what do you think is
Speaker 1: different this time around? I think this was a classic
Speaker 1: Minsky bubble or a Minskey moment, which is exuberant over
Speaker 1: speculation in an asset underpinned by tremendous amounts of over leverage.
Speaker 1: Minsky moment, a sudden market collapse that follows an extended
Speaker 1: period of high spending and indebtedness. And I think that
Speaker 1: is a starting point for a key difference against previous
Speaker 1: crypto winters, and it starts to look more like dot
Speaker 1: com bast um to twenty years ago. Maybe even there's
Speaker 1: some shades of things that happened in the financial crisis,
Speaker 1: although I don't want to get too grandiose. There are
Speaker 1: a number of other things that are quite different. And
Speaker 1: I think when it's re hypothlication of assets, rehypathlication using
Speaker 1: customer or client said fill your own trading purposes that
Speaker 1: are denominated in other assets that are also part of
Speaker 1: this spiraling upwards bubble, this creates an almost infinite loop
Speaker 1: of self referentiality that helps everybody look good on the
Speaker 1: way up and really accelerates everything on the way down.
Speaker 1: And I think that's how I would summarize what's been
Speaker 1: different here, And of course that's been underpinned by the
Speaker 1: fact that there's just been so much capsule that has
Speaker 1: flooded in so quickly. That's partly been a facet of
Speaker 1: enthusiasm for crypto in particular, And that's partly been the
Speaker 1: tail end of the over stimulation of the economy, whether
Speaker 1: that's been in regular tex stocks, whether that's been in
Speaker 1: equities or other asset classes in general. I think that's
Speaker 1: just been very obvious here in the world of crypto
Speaker 1: as well. So you add all of those things up,
Speaker 1: and it basically sounds like all of the financial crisis
Speaker 1: buzzwords that any of us ever studied who are economic historians,
Speaker 1: and you line them all up, and bingo. Because you
Speaker 1: mentioned some of those key buzzwords, I guess like rehypothefication
Speaker 1: would be one, leverage would be another. UM And those
Speaker 1: are things that are very specifically playing out right now
Speaker 1: in the collapses of different players, like three Horos Capital
Speaker 1: going through liquidation. Three Hourrows Capital one of the biggest
Speaker 1: crypto head funds out there. It was ordered into liquidation
Speaker 1: by a court in the British Virgin Island. UM and
Speaker 1: do you want to kind of explain a little bit more,
Speaker 1: I guess how you view those as being potentially toxic
Speaker 1: during this winter. I think one of the really interesting
Speaker 1: conversations that I had probably eighteen months ago with UM
Speaker 1: where they startup that was making a business model off
Speaker 1: of lending and staking and yield in defy and was
Speaker 1: promising yields of seventeen And I'm I'm no deep defy engineer,
Speaker 1: and I'm certainly no market arbitrage expert, but I've been
Speaker 1: around long enough to know that if something is too
Speaker 1: good to be true, then it isn't true. And there
Speaker 1: is no such thing as ristlessness. And actually, lastly, most importantly,
Speaker 1: you can't bet against the market and the overall economy.
Speaker 1: And so if you were thinking that you could get
Speaker 1: yield on something that was at lower rest than something
Speaker 1: that was yielding three or four percent, you might get
Speaker 1: away with that for a few weeks, maybe even a
Speaker 1: few months, but you wouldn't be able to get with
Speaker 1: that get away with that indefinitely. And I think it's
Speaker 1: that live of hubrist that also crept in to a
Speaker 1: number of players in the market, this belief that this
Speaker 1: time it was different, this time we were smarter, this
Speaker 1: time technology or engineering would make us better. Those were
Speaker 1: just fundamental aspects of the hubris that crept in that
Speaker 1: again was reminiscent of the tech bubble. I think one
Speaker 1: thing that we mentioned previously was about how you almost
Speaker 1: picked up on it a little bit there. But the
Speaker 1: marketing of all of this and the message that was
Speaker 1: being sold to investors is that, you know, I think
Speaker 1: in the in the article I wrote, I referenced an
Speaker 1: advert on a bus that said if you're seeing bitcoin
Speaker 1: on a bus, it's time to buy It was very
Speaker 1: famous in the UK and got banned eventually for being
Speaker 1: too you know, for I guess forth right with them
Speaker 1: bitcoins pros and cons. But in that I guess how
Speaker 1: much of the current crypto window was created by this
Speaker 1: messaging that was being put out to investors that this
Speaker 1: was something very easy to get into, very you know,
Speaker 1: not a risky bet to be making, or at least
Speaker 1: no more risky than buying bitcoin directly. I think why
Speaker 1: I've been the best way to put it. You know,
Speaker 1: it's it's hard for me to judge because that's pretty
Speaker 1: qualitative and anecdotal. How much more was it created by this?
Speaker 1: How much could it be focused on this? And then
Speaker 1: you'll move into a realm of should it have been regulated?
Speaker 1: How much more closely should this messaging have been monitored?
Speaker 1: Now that's equally I'm not saying that it should not
Speaker 1: have been regulated. These are financial products, and any time
Speaker 1: you're promoting financial products to consumers, there needs to be
Speaker 1: a moderation in your messaging, and there needs to be
Speaker 1: Dare I say at some level of regulation, which there
Speaker 1: was not in a lot of these crypto products, and
Speaker 1: that the complication there, I suppose the does that make
Speaker 1: it any different? Again, it makes it different from previous
Speaker 1: crypto winters because the sheer volume, in the sheer number
Speaker 1: of people caught up in the exuberance, it was just
Speaker 1: an order of magnitudes more than anything we've seen in
Speaker 1: the past. But I think when you're starting to get
Speaker 1: people who wouldn't normally play and as you've said, less
Speaker 1: complicated financial products, thinking that they could have riskless, easy
Speaker 1: access to money with promises of or more per year returns,
Speaker 1: that becomes a real problem. And I think there's a
Speaker 1: There was a great statement that I read in a
Speaker 1: blog post that this went beyond recklessness and moved into tragedy.
Speaker 1: And we're hearing stories now of people who plowed their
Speaker 1: life savings into some of these lending business models convinced
Speaker 1: that yield class they could do it with. As you said,
Speaker 1: also no more risk than just buying buying gold or
Speaker 1: yeing bitcoin. And I think that's going to have some
Speaker 1: real world repercussions for a number of people that said.
Speaker 1: I don't want to overstate it either, because we talked
Speaker 1: about this notion of systemic risk, but I think that
Speaker 1: it was self contained, as hermetically sealed within the crypto world.
Speaker 1: And and obviously we've talked about the tragedy of the
Speaker 1: implications for individual retail investors who plowed in too far.
Speaker 1: But I don't think what we're seeing is something that's
Speaker 1: having ongoing implications for the wider real economy. And that's
Speaker 1: probably a good thing. Um. And and that's that's something
Speaker 1: that I think is perhaps similar to previous crypto winters,
Speaker 1: that this still has been largely in crypto world, although
Speaker 1: of course crypto world is now an order of magnitude
Speaker 1: or more bigger than it was the last cycle. Yeah,
Speaker 1: And I guess part of that that order of magnitude
Speaker 1: contributing to that is the fact that the current economic
Speaker 1: environment is so difficult. So you know, it was very
Speaker 1: easy to sell a story of yields and defy when
Speaker 1: you're getting less than one percent on your savings are
Speaker 1: count in a real bank um. But kind of going
Speaker 1: beyond that, we've seen that you know, around two trillion
Speaker 1: is wipes off the market cap since the November peak,
Speaker 1: So that's about a two thirds lost for the sector
Speaker 1: as a whole. What are the consequences of that that
Speaker 1: you think? And the crypto sector is now going to
Speaker 1: be facing. So I don't mean to be overly flippant,
Speaker 1: but I think the consequences are everything and nothing um.
Speaker 1: And so what do I mean by that? I was
Speaker 1: actually looking up the amount of ECTI value destruction again
Speaker 1: during the dot com bost. I think the estimates range
Speaker 1: between five and ten trillion, And of course we look
Speaker 1: at the wider ecty markets and the collapse in share
Speaker 1: prices also in other parts of the real economy. Again
Speaker 1: we're talking of something north of five trillion. So in
Speaker 1: the grand scheme of things, especially because crypto was reasonably
Speaker 1: hermetically sealed from the rest of the wider economy, you
Speaker 1: could argue nothing. Again, it's not going to feel like
Speaker 1: nothing for the thousands of people who have lost their
Speaker 1: jobs and for the many consume umors who have lost
Speaker 1: very significant investments. But in terms of the grander scheme
Speaker 1: of things, what are the implications for the real world,
Speaker 1: for the real economy, also for the innovation cycles that
Speaker 1: that maybe we'll get onto talking later on in tech
Speaker 1: also in crypto, you could argue not so much. We'll
Speaker 1: be right back with more of Emily Nichol's conversation with
Speaker 1: Austin Zeka of Eight Roads Ventures about the state of
Speaker 1: the Sea FI wipeout. So if we're thinking about how
Speaker 1: crypto might come out of this winter and then go
Speaker 1: back to that sunshine and summertime of the of the
Speaker 1: bull market, um, what role do investors play in that journey,
Speaker 1: both on the retail side but also within venture capital.
Speaker 1: How much do you guys have a say, in a
Speaker 1: participatory role in in reversing the winter. Well, the starting
Speaker 1: point is we do have access to capital that's hopefully supportive.
Speaker 1: I think that you will have noticed that in terms
Speaker 1: of investing into startups in the space, capital has slowed
Speaker 1: down but not dried up. So being an efficient allocator
Speaker 1: of capital is supposed to be our job, taking capital
Speaker 1: to the business moans that we think are sustainable and
Speaker 1: and whereas I suppose in the over exuberance of the
Speaker 1: last couple of years a lot of that capital was
Speaker 1: not allocated effectively or efficiently, and and fueled to a
Speaker 1: certain extent too much of the exuberance. Um, I think
Speaker 1: that everyone has now gone back to basics, and and
Speaker 1: I'm quite hopeful that we can help we as an
Speaker 1: industry can be helpful in that regard. And again, secondly,
Speaker 1: I think in terms of the pattern recognition we ourselves
Speaker 1: as professionals, or at least in terms of the institutional
Speaker 1: knowledge that we have, even if we didn't have it personally.
Speaker 1: We've been around through many cycles. For example, eight Roads
Speaker 1: and its predecessor funds have been investing in venture capital
Speaker 1: since the late sixties, so we've seen quite a few cycles.
Speaker 1: And hopefully we can therefore bring the pattern recognition, but
Speaker 1: also a bit more of a sense of when there
Speaker 1: are some leading indicators that spring is coming to be
Speaker 1: supportive about the right strategies to to use that capital effectively.
Speaker 1: From the perspective of retail investors, who gets involved, especially
Speaker 1: in terms of crypto itself, that's a really interesting question,
Speaker 1: and I think that that is potentially a dangerous one
Speaker 1: until we've got a bit more clarity about the extent
Speaker 1: to which these business models ought to be regulated, or
Speaker 1: at least the messaging how much it ought to be
Speaker 1: moderated to pure retail investors. Obviously retail investors range and sophistication.
Speaker 1: For now, I think that there will be a certain
Speaker 1: amount of market enforced self regulation, but I think that's
Speaker 1: gonna be an interesting conversation to go on over time.
Speaker 1: That that said, I think there's a third element here,
Speaker 1: and that comes back to the infrastructure. I think that
Speaker 1: will be another very interesting trend during the next turn
Speaker 1: of the cycle here for digital assets. And then I
Speaker 1: guess our last question, what should traders and companies be
Speaker 1: looking out for in this current environment? You know what,
Speaker 1: what would be the signs that they should be looking
Speaker 1: forward to say this is the kind of the ending
Speaker 1: point or the turning point, because at the moment it
Speaker 1: definitely feels like we're in the doll drums of the winter.
Speaker 1: I'm afraid I'm going to give a very safe answer,
Speaker 1: which is if I if I knew that perhaps I
Speaker 1: would be a more active crypto trade in myself, I
Speaker 1: do subscribe, and I think there have been surveys out
Speaker 1: there which have said that the consensus is there's more
Speaker 1: downside than upside in the price at the moment. I
Speaker 1: think I would agree with that. Then again, I think
Speaker 1: that's more generally the case for a lot of stocks.
Speaker 1: With every passing week, it looks like there's more bearishness
Speaker 1: about where equities will be trading over the next few
Speaker 1: months as well. So I definitely think that although people
Speaker 1: talk about crypto is being a hedge to inflation and
Speaker 1: non correlated with traditional assets, I think we've not seen
Speaker 1: that over the last few quarters, and I think that
Speaker 1: we're going to see a little bit longer of that
Speaker 1: level of correlation. Well, thank you for joining me. Thank
Speaker 1: you very much. You just heard from Emily Nicole, reporter
Speaker 1: for Bloomberg Cryptom. So glad that she was able to
Speaker 1: do that interview. You can find more of Emily's reporting
Speaker 1: on the Bloomberg terminal on Bloomberg dot com, and you
Speaker 1: can find her on Twitter. She's at Emily J. Nicole.
Speaker 1: That's n I CEO L L E. On the next
Speaker 1: episode of Bloomberg Crypto. What do rapper Jay Z and
Speaker 1: the former CEO of Twitter, Jack Dorsey have in common?
Speaker 1: It's not music and it's not just that they're billionaires,
Speaker 1: it's bitcoin. And if you spend enough time around people
Speaker 1: who believe in the arguments that crypto can transform society,
Speaker 1: you'll eventually hear them talking about the idea of financial inclusion.
Speaker 1: And that's exactly what jay Z has teamed up with
Speaker 1: Dorsey to do on something that they're calling Bitcoin ac Adamy,
Speaker 1: which they say has the goal of educating and empowering
Speaker 1: people through financial literacy, and of course there's a focus
Speaker 1: on bitcoin. Bloomberg Proportas, Polina Cachero and Aquila Gardner will
Speaker 1: join me to discuss Bitcoin Academy and whether crypto is
Speaker 1: truly the key to a more financially inclusive society. I'm
Speaker 1: Stacy Marie Ishmael, and this is Bloomberg Crypto, a daily
Speaker 1: podcast from Bloomberg and I Heart Radio. For more shows
Speaker 1: from I Heart Radio, visit the I Heart Radio app,
Speaker 1: Apple Podcasts, or wherever you get your podcasts. Email your questions,
Speaker 1: comments or suggestions for the show to Crypto at Bloomberg
Speaker 1: dot net and you'll find us on Twitter at Crypto.
Speaker 1: The supervising producer of Bloomberg Crypto is Vicky very Galina,
Speaker 1: our senior producer is Janet Babin. Our producer is Mohammed Farup.
Speaker 1: Our associate producers Ozanam Suddiki and Moses and um Desta
Speaker 1: wonder At is our engineer. Original music by Leo Sadrin.
Speaker 1: The Safe Shot a bl