1 00:00:02,520 --> 00:00:10,319 Speaker 1: Bloomberg Audio Studios, podcasts, radio News. I'm Stephen Carroll, and 2 00:00:10,400 --> 00:00:12,840 Speaker 1: this is Here's Why, where we take one new story 3 00:00:12,880 --> 00:00:14,840 Speaker 1: and explain it in just a few minutes with our 4 00:00:14,840 --> 00:00:16,400 Speaker 1: experts here at Bloomberg. 5 00:00:20,400 --> 00:00:24,000 Speaker 2: I promise to make America the bitcoin superpower of the 6 00:00:24,000 --> 00:00:27,480 Speaker 2: world and the crypto capital of the planet, and we're 7 00:00:27,480 --> 00:00:30,200 Speaker 2: taking historic action to deliver on that promise. 8 00:00:31,520 --> 00:00:35,120 Speaker 1: Donald Trump's election sent a shock wave of excitement through 9 00:00:35,120 --> 00:00:39,200 Speaker 1: the crypto world, propelling bitcoin to record highs of over 10 00:00:39,240 --> 00:00:40,960 Speaker 1: one hundred thousand dollars. 11 00:00:41,159 --> 00:00:43,120 Speaker 2: There was a lot of uncertainty on whether we would 12 00:00:43,159 --> 00:00:46,360 Speaker 2: have a crypto friendly administration here in the US. The 13 00:00:46,440 --> 00:00:49,720 Speaker 2: answer is a resounding yes, and so I think we're 14 00:00:49,720 --> 00:00:51,199 Speaker 2: seeing all this pent up demand. 15 00:00:52,560 --> 00:00:56,320 Speaker 1: The US President has become a strong advocate for digital assets. 16 00:00:56,400 --> 00:00:59,200 Speaker 1: He even has his own mean coin, so investors were 17 00:00:59,200 --> 00:01:02,160 Speaker 1: bracing for a big moment when he gathered industry executives 18 00:01:02,200 --> 00:01:05,000 Speaker 1: for a digital Asset summit at the White House and 19 00:01:05,080 --> 00:01:08,120 Speaker 1: appointed David Sachs as its cryptos are. 20 00:01:08,000 --> 00:01:11,880 Speaker 3: We've decided that bitcoin is scarce, it's valuable, and that 21 00:01:12,000 --> 00:01:13,800 Speaker 3: is strategic for the United States to hold on to 22 00:01:13,880 --> 00:01:15,480 Speaker 3: this as a long term reserve. Asset. 23 00:01:17,040 --> 00:01:20,360 Speaker 1: Donald Trump also signed an executive order creating a US 24 00:01:20,440 --> 00:01:24,880 Speaker 1: Bitcoin reserve and a separate stockpile of other tokens, but 25 00:01:25,000 --> 00:01:28,440 Speaker 1: investors didn't seem impressed. The price of bitcoin and other 26 00:01:28,520 --> 00:01:32,679 Speaker 1: crypto assets slumped after the announcement. Here's why crypto fans 27 00:01:32,720 --> 00:01:38,880 Speaker 1: are underwhelmed by Trump's plans. Let's bring in our executive 28 00:01:38,920 --> 00:01:41,880 Speaker 1: editor for crypt Stacy Mrishmel, for more. Stacey Ury, great 29 00:01:41,880 --> 00:01:45,320 Speaker 1: to have you with us. What exactly are the reserves 30 00:01:45,360 --> 00:01:47,280 Speaker 1: that Donald Trump now wants to create? 31 00:01:47,800 --> 00:01:52,040 Speaker 3: That is the one hundred thousand dollars question, so to start, 32 00:01:52,160 --> 00:01:56,000 Speaker 3: I think it's important for folks to understand that this 33 00:01:56,280 --> 00:02:00,120 Speaker 3: was a big campaign pledge from now President Donald Trum 34 00:02:00,280 --> 00:02:03,640 Speaker 3: when he was still you know, pre election. He stood 35 00:02:04,080 --> 00:02:08,480 Speaker 3: at a huge gathering of bitcoin fans in Nashville in 36 00:02:08,520 --> 00:02:11,560 Speaker 3: the United States last July and said, we want to 37 00:02:11,560 --> 00:02:14,120 Speaker 3: make the US the crypto capital of the planet. We're 38 00:02:14,120 --> 00:02:15,800 Speaker 3: going to do it with bitcoin. We're going to have 39 00:02:15,880 --> 00:02:19,840 Speaker 3: this idea of a bitcoin Fort Knox. And at the time, 40 00:02:19,960 --> 00:02:22,720 Speaker 3: what people thought that meant was the US government is 41 00:02:22,840 --> 00:02:25,720 Speaker 3: going to become a buyer of bitcoin. Right, like, to 42 00:02:25,840 --> 00:02:27,960 Speaker 3: use the industry parlance, the US government was going to 43 00:02:27,960 --> 00:02:30,760 Speaker 3: become a bitcoin whale and hold a whole bunch of 44 00:02:30,800 --> 00:02:33,799 Speaker 3: these tokens, buy a whole bunch of these tokens. Fast 45 00:02:33,840 --> 00:02:38,079 Speaker 3: forward to March and this executive order that you just mentioned, 46 00:02:38,600 --> 00:02:41,720 Speaker 3: and the reality is a little bit more muted, shall 47 00:02:41,800 --> 00:02:46,239 Speaker 3: we say, because this idea of the reserve is formalizing 48 00:02:46,280 --> 00:02:50,080 Speaker 3: the idea that for any bitcoin the US government currently owns, 49 00:02:50,639 --> 00:02:52,960 Speaker 3: they're not going to sell it. But there isn't this 50 00:02:53,160 --> 00:02:55,560 Speaker 3: enormous mandate to go out and buy a huge amount. 51 00:02:55,639 --> 00:02:59,560 Speaker 1: More So, why does the Trump administration want to be 52 00:03:00,200 --> 00:03:02,240 Speaker 1: invested in crypto at all or even if they're not 53 00:03:02,240 --> 00:03:02,920 Speaker 1: going to bias? 54 00:03:03,639 --> 00:03:05,320 Speaker 3: There are a few ways we've attempted to answer this 55 00:03:05,400 --> 00:03:08,360 Speaker 3: question right. The first is, and it's very much related 56 00:03:08,400 --> 00:03:11,000 Speaker 3: to this idea of why was the presidents at a 57 00:03:11,040 --> 00:03:14,160 Speaker 3: bitcoin conference in last July anyway? And the answer is, 58 00:03:14,360 --> 00:03:18,240 Speaker 3: over the past few years, the crypto industry, and in particular, 59 00:03:18,400 --> 00:03:23,400 Speaker 3: some very wealthy individuals in the crypto industry, became mega 60 00:03:23,440 --> 00:03:28,920 Speaker 3: donors to political campaigns, presidential campaigns, congressional campaigns up and 61 00:03:28,960 --> 00:03:34,239 Speaker 3: down the ballot. Democrats, Republicans, and you know, politicians realized 62 00:03:34,240 --> 00:03:38,480 Speaker 3: that this was a new constituency to be courting for 63 00:03:38,600 --> 00:03:43,840 Speaker 3: their considerable financial reserves, and so this idea of appealing 64 00:03:44,040 --> 00:03:46,960 Speaker 3: to that audience by making promises about crypto, by making 65 00:03:47,000 --> 00:03:51,520 Speaker 3: promises about bitcoin, was definitely something that happened. Fans of 66 00:03:51,560 --> 00:03:54,840 Speaker 3: bitcoin will often say something to the effect of they're 67 00:03:54,880 --> 00:03:57,280 Speaker 3: only ever going to be a certain number of tokens. 68 00:03:57,840 --> 00:04:01,080 Speaker 3: That introduces this idea of scarcity, and so if the 69 00:04:01,200 --> 00:04:03,600 Speaker 3: US government buys some of those tokens, it's going to 70 00:04:03,640 --> 00:04:06,400 Speaker 3: help the price go up even further. And so everybody 71 00:04:06,440 --> 00:04:09,400 Speaker 3: who's currently holding bitcoin is really going to benefit, including 72 00:04:09,440 --> 00:04:13,040 Speaker 3: the US government. Now there's a little bit of circularity 73 00:04:13,080 --> 00:04:15,280 Speaker 3: to that argument if everybody buys it and nobody sells 74 00:04:15,320 --> 00:04:16,760 Speaker 3: and the price will go up, you know, which is 75 00:04:16,839 --> 00:04:18,440 Speaker 3: kind of like, okay, well, if you have a reserve, 76 00:04:18,520 --> 00:04:21,000 Speaker 3: sometimes you might want to use that to do other things, 77 00:04:21,120 --> 00:04:23,880 Speaker 3: not just hold it infinitely into the future. But that's 78 00:04:23,920 --> 00:04:26,720 Speaker 3: also one of the reasons this idea of having a 79 00:04:26,760 --> 00:04:30,359 Speaker 3: big strategic investor, shall we say, like the US government 80 00:04:30,720 --> 00:04:33,640 Speaker 3: giving a vote of confidence to this often very volatile 81 00:04:33,640 --> 00:04:38,279 Speaker 3: digital asset, will introduce a floor for the price of 82 00:04:38,320 --> 00:04:38,680 Speaker 3: this thing. 83 00:04:38,920 --> 00:04:41,120 Speaker 1: So, okay, the reason that we explain the price reaction 84 00:04:41,240 --> 00:04:43,480 Speaker 1: is because the US government isn't investing in it. I've 85 00:04:43,480 --> 00:04:47,359 Speaker 1: got that part. What other things, though, has President Trump said, 86 00:04:47,720 --> 00:04:50,680 Speaker 1: like for example, on regulation that are being more broadly 87 00:04:50,760 --> 00:04:53,040 Speaker 1: perceived as positive for crypto. 88 00:04:52,880 --> 00:04:55,359 Speaker 3: As you mentioned this idea of the bitcoin Fort Knox, 89 00:04:55,400 --> 00:04:58,120 Speaker 3: the strategic reserve was only one of the promises made 90 00:04:58,160 --> 00:05:01,960 Speaker 3: to the crypto industry. Another really big one was to 91 00:05:03,040 --> 00:05:06,960 Speaker 3: undo what was perceived by the industry as this hostile 92 00:05:07,120 --> 00:05:11,000 Speaker 3: regulatory climate. You know. So under the previous chair of 93 00:05:11,040 --> 00:05:15,240 Speaker 3: the Securities and Exchange Commission, really important US regulator, a 94 00:05:15,279 --> 00:05:19,880 Speaker 3: lot of crypto companies had been sued investigated. You know. Famously, 95 00:05:20,040 --> 00:05:24,279 Speaker 3: there was the FTX crypto exchange fraud that saw sam 96 00:05:24,320 --> 00:05:27,440 Speaker 3: bankmin Freed go to jail for relatively long amount of time. 97 00:05:27,800 --> 00:05:31,400 Speaker 3: But there were also allegations against finance at still the 98 00:05:31,400 --> 00:05:35,520 Speaker 3: world's largest crypto exchange, who were you know, sued for 99 00:05:35,640 --> 00:05:40,000 Speaker 3: four point three billion dollars on kind of very significant allegations, 100 00:05:40,000 --> 00:05:43,400 Speaker 3: including failure to prevent money laundering and other such crimes. 101 00:05:43,839 --> 00:05:47,080 Speaker 3: So there was a perception from the industry that what 102 00:05:47,160 --> 00:05:51,799 Speaker 3: they described as a few bad actors had unreasonably tainted 103 00:05:51,839 --> 00:05:55,160 Speaker 3: everybody else, and that the SEC was overly aggressive in 104 00:05:55,360 --> 00:05:58,880 Speaker 3: attempting to police them. Trump at this same conference in 105 00:05:59,000 --> 00:06:02,280 Speaker 3: Nashville said one I'm gonna fire Gary Againstler. He didn't 106 00:06:02,279 --> 00:06:06,320 Speaker 3: have to fire Gary Againstler. Chair Againstler resigned And you know, 107 00:06:06,360 --> 00:06:08,760 Speaker 3: on the same day that Trump was inaugurated, that took effect. 108 00:06:09,160 --> 00:06:12,640 Speaker 3: But since then, you know, under Trump, regulators have taken 109 00:06:12,720 --> 00:06:16,520 Speaker 3: a really different approach. The same SEC which was doing 110 00:06:16,560 --> 00:06:20,640 Speaker 3: all of these investigations has dropped or paused most of 111 00:06:20,640 --> 00:06:24,240 Speaker 3: the open investigations in cases, other regulators have come out 112 00:06:24,279 --> 00:06:26,600 Speaker 3: and said, we're going to be effectively much more chill 113 00:06:26,600 --> 00:06:27,919 Speaker 3: on this than we were previously. 114 00:06:28,720 --> 00:06:30,800 Speaker 1: What are the features that's helped to boost the prize 115 00:06:30,839 --> 00:06:34,440 Speaker 1: a bitcoin in recent years has been more professional investors 116 00:06:34,480 --> 00:06:38,200 Speaker 1: getting involved in this space. What's their view of these changes? 117 00:06:38,400 --> 00:06:41,000 Speaker 1: And what about the economists perspective and all of this. 118 00:06:41,160 --> 00:06:43,440 Speaker 1: Do they think that a strategic reserves a good idea? 119 00:06:43,760 --> 00:06:46,040 Speaker 3: I'll start with the economists, because it's very much linked 120 00:06:46,080 --> 00:06:49,200 Speaker 3: to the atmosphere that we're in right now. If anyone 121 00:06:49,279 --> 00:06:50,960 Speaker 3: has ever thought of a strategic reserve, I don't know 122 00:06:51,000 --> 00:06:53,200 Speaker 3: what kind of dinner party conversation everybody else has, but 123 00:06:53,279 --> 00:06:54,880 Speaker 3: my friends and I talk about this all the time. 124 00:06:55,080 --> 00:06:56,960 Speaker 3: So when you know, when you talk about a strategic reserve, 125 00:06:57,000 --> 00:07:01,359 Speaker 3: you're often thinking about oh, okay, foreign exchange or gold 126 00:07:01,760 --> 00:07:06,119 Speaker 3: or oil, things that are traditionally perceived as having some 127 00:07:06,279 --> 00:07:11,680 Speaker 3: sort of value or utility that can be exchanged, used 128 00:07:11,840 --> 00:07:15,000 Speaker 3: sold as might be you know, necessary to either support 129 00:07:15,240 --> 00:07:17,960 Speaker 3: the ongoing operations of a country or for other financial reasons. 130 00:07:18,360 --> 00:07:20,880 Speaker 3: And so the you know, the kind of the critics 131 00:07:20,880 --> 00:07:22,960 Speaker 3: of this idea of a reserve are like, well, what 132 00:07:23,000 --> 00:07:24,480 Speaker 3: are you going to do with the bitcoin? 133 00:07:24,560 --> 00:07:24,840 Speaker 2: Though? 134 00:07:25,000 --> 00:07:27,440 Speaker 3: Right? Like, is what is the problem that you are 135 00:07:27,480 --> 00:07:32,360 Speaker 3: trying to solve here? And there has been a certain 136 00:07:32,400 --> 00:07:35,800 Speaker 3: amount of skepticism that this makes sense. 137 00:07:35,840 --> 00:07:36,040 Speaker 2: You know. 138 00:07:36,080 --> 00:07:40,440 Speaker 3: We had an opinion piece from Bill Dudley, former presidents 139 00:07:40,440 --> 00:07:41,920 Speaker 3: of the Federal Reserve Bank of New York and now 140 00:07:41,960 --> 00:07:45,720 Speaker 3: Bloomberg columnist, who said, without mincing words, it's hard to 141 00:07:45,760 --> 00:07:48,840 Speaker 3: fathom how this would benefit most Americans. And that's the 142 00:07:48,880 --> 00:07:53,760 Speaker 3: idea of other than inherent speculative value, or this idea 143 00:07:53,880 --> 00:07:56,320 Speaker 3: of you know, if you buy and hold, the price 144 00:07:56,400 --> 00:08:00,960 Speaker 3: might appreciate. There isn't necessarily a wide bread utility for 145 00:08:01,040 --> 00:08:05,080 Speaker 3: bitcoin as a means of payments. For instance, enter those 146 00:08:05,160 --> 00:08:08,520 Speaker 3: institutional investors that you mentioned. A big thing that has 147 00:08:08,600 --> 00:08:11,960 Speaker 3: rallied or contributed to the rally in bitcoin over the 148 00:08:11,960 --> 00:08:15,960 Speaker 3: past year or so has been the introduction of exchange 149 00:08:16,040 --> 00:08:20,040 Speaker 3: traded funds that are backed by bitcoin. And so you 150 00:08:20,080 --> 00:08:23,200 Speaker 3: can now go to a financial advisor here in the 151 00:08:23,280 --> 00:08:25,239 Speaker 3: US and say, I want to get some crypto exposure 152 00:08:25,240 --> 00:08:27,480 Speaker 3: in my portfolio. What is one of the ways that 153 00:08:27,520 --> 00:08:29,160 Speaker 3: I can do that. You can buy an ETF, and 154 00:08:29,200 --> 00:08:31,440 Speaker 3: ETFs are some of them, like the most popular kind 155 00:08:31,480 --> 00:08:35,400 Speaker 3: of retail products that are available to different kinds of investors. 156 00:08:35,960 --> 00:08:41,160 Speaker 3: And the problem, though, is when you institutionalize an asset class, 157 00:08:41,200 --> 00:08:44,280 Speaker 3: when you have it being bought at very large size 158 00:08:44,320 --> 00:08:48,400 Speaker 3: by other people who take macroeconomic considerations into account, when 159 00:08:48,440 --> 00:08:51,000 Speaker 3: the economy is perceived is not doing too well, or 160 00:08:51,040 --> 00:08:54,760 Speaker 3: when people's risk profile changes, anything that they have in 161 00:08:54,800 --> 00:08:57,160 Speaker 3: those portfolios that they consider it to be risky gets 162 00:08:57,200 --> 00:08:59,440 Speaker 3: sold off with everything else. You have a correlation problem. 163 00:08:59,840 --> 00:09:02,960 Speaker 3: That's really been something we've been seeing with crypto. You know, 164 00:09:03,000 --> 00:09:06,280 Speaker 3: there's concern about tariffs, stocks are falling, Bitcoin is falling, 165 00:09:06,679 --> 00:09:10,800 Speaker 3: there's concern about slowing rates of growth. Stocks are falling, 166 00:09:10,880 --> 00:09:11,800 Speaker 3: Bitcoin is falling. 167 00:09:12,000 --> 00:09:15,080 Speaker 1: Stacy Murriy shmel Our, executive editor for Crypto. Thank you. 168 00:09:15,760 --> 00:09:18,120 Speaker 1: For more explanations like this from our team of three 169 00:09:18,160 --> 00:09:21,000 Speaker 1: thousand journalists and analysts around the world, go to Bloomberg 170 00:09:21,040 --> 00:09:26,000 Speaker 1: dot com slash explainers. I'm Stephen Carol. This is here's why. 171 00:09:26,160 --> 00:09:28,440 Speaker 1: I'll be back next week with more. Thanks for listening.