Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
Speaker 1: my co host Matt Miller. Every business day, we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. Katarina Simonetti, Senior vice
Speaker 1: president Private wealth adviser at Morgan Stanley, joins us. Katarina,
Speaker 1: on a day like today, give me an example of
Speaker 1: one of the incoming phone calls you've received from your
Speaker 1: clients today. Well, thank you for having me on the show.
Speaker 1: You know, it certainly has been, you know, a difficult
Speaker 1: year for investors, and you know specifically this day, and
Speaker 1: you know, the type of phone calls we would receive
Speaker 1: on the day like today would be focused on the
Speaker 1: fact that investors are getting uncomfortable um with the stocks
Speaker 1: and bonds that they own, and they might understand that
Speaker 1: the quality of their portfolio is really high and there
Speaker 1: really welcal asitions, but we are all human beings and
Speaker 1: it's very hard to manage through the sphere, and we
Speaker 1: tell our our clients all the time, over and over
Speaker 1: and over again to focus on the long term. But
Speaker 1: you see returns on the day like today and you
Speaker 1: know what we're so during the previous week and in combination,
Speaker 1: is getting progressively difficult for them to focus on that
Speaker 1: long term, to have that big picture you know, in
Speaker 1: mind and in our review. The only thing that we
Speaker 1: can do at the moment is go back to basis,
Speaker 1: go back to all the work that was done through
Speaker 1: the portfolio construction on making sure that the portfolio quality
Speaker 1: is really high on the income generation, to in quality
Speaker 1: of the portfolio only asset allocation between stocks and bonds,
Speaker 1: and also internationally because surprisingly many when we look at
Speaker 1: the returns and the European markets in general, um, you
Speaker 1: know they're not you know, quite quite as bad as
Speaker 1: good which seemed here in the US, making our case
Speaker 1: for at allocation, but investors are concerned in the scary time. Sorry,
Speaker 1: I feel like we haven't seen Katerina true capitulation. And
Speaker 1: I don't know if that's necessary, but it seems to
Speaker 1: be something that a lot of people want. Right now.
Speaker 1: The VIX is at thirty three, but it's taken so
Speaker 1: long for to get there. This sell off seems fairly orderly.
Speaker 1: What what what do you think we need to see? Well,
Speaker 1: bottoms are hard to printict to begin with, and the
Speaker 1: market is getting to the the the range that we
Speaker 1: quite frankly have expected. You know, we thought that on
Speaker 1: the lower side we could see anywhere from uh thirty
Speaker 1: four hundred to thirty eight hundred. We're at thirty seven
Speaker 1: seventy nine at the moment. And it's not used to
Speaker 1: anyone that we are in the bare market and you know,
Speaker 1: the rallies that we have been seeing. The one of
Speaker 1: the big things to keep in mind is that, you know,
Speaker 1: the bear market rallies, which is totally normal during the
Speaker 1: bear markets, and we have to um analyze the data
Speaker 1: that is coming in and you know see really the
Speaker 1: the path out of this bear market, which we quite
Speaker 1: frankly think is not going to last too long. We
Speaker 1: think that with all of the earnings revisions to the negative,
Speaker 1: eventually as we get through the force and force and
Speaker 1: a third and forced quarter of earning reports, we're going
Speaker 1: to get some positive news and maybe get get this
Speaker 1: catalyst that we need to get for the third and
Speaker 1: fourth quarter. You think we need to get through the
Speaker 1: second half of the year. That's what we think. Yes,
Speaker 1: we think that that we're here. But but but at
Speaker 1: the same time, you know, here's a little bit of
Speaker 1: a positivity means as difficult asitors to you know, focus
Speaker 1: on it. Right now, our up range for the year
Speaker 1: is forty two hundred to three hundred because as the inflation,
Speaker 1: you know, get get somewhat out of control and as
Speaker 1: tu more confidence in pools a little bit and we
Speaker 1: start seeing the end of this earnings revision cycles and
Speaker 1: companies get into in position where the earnings are normal.
Speaker 1: We're looking for that general market normalization. You know that
Speaker 1: that is you know, difficult to achieve. We just have
Speaker 1: been through this COVID environment. There's UM, a war in um,
Speaker 1: you know in Ukraine. That as the geo political risk.
Speaker 1: But the biggest thing is that consumer confidence is at
Speaker 1: the all time low. I mean, we have not seen
Speaker 1: the numbers at the quite frankly at the levels that
Speaker 1: they are today. And the big part of it is
Speaker 1: the price of blowing gases. Inflation is you know, just
Speaker 1: just the day to day. But at the same time,
Speaker 1: in our view, market cycles are getting hotter but shorter,
Speaker 1: and we even though the but we totally appreciate the
Speaker 1: possibility of the recession, thinks that it's not you deal
Speaker 1: that you know, it might be on the horizon, but
Speaker 1: it also is not something that is a sure thing,
Speaker 1: all right in terms of kind of getting a sense
Speaker 1: of are we seeing capitulation. I have an SMP that's
Speaker 1: off three point three percent this morning. I look at
Speaker 1: the w e I function on the Bloomberg terminal and
Speaker 1: I see the volume so far this morning is thirty
Speaker 1: three above the thirty day average so far today. So
Speaker 1: that's a little bit of something to pay attention to. Katerina,
Speaker 1: when when you talk to clients and they say, I
Speaker 1: think this is the bomb. I want to buy some stuff,
Speaker 1: you want to put some money to work. Are there
Speaker 1: any sectors today that you feel comfortable with? Absolutely? They
Speaker 1: are all these sectors that would do better than others,
Speaker 1: you know, in this type of environment. In all of
Speaker 1: you the data point the re focus on is inflation
Speaker 1: and that it might be peaking. Actually so so the
Speaker 1: sectors that dwell in this environment are utilities, healthcare, real estate,
Speaker 1: UH and consumer stables. And consumer stables is the you know,
Speaker 1: it's a little tricky because there is a price pressure
Speaker 1: there you know, but but we think that this is
Speaker 1: the after that that those Hubert defensive sectors, you know,
Speaker 1: that are positions well in this environment. But you know,
Speaker 1: speaking about inflation, even though we think that inflation might
Speaker 1: be declining, um, we think it's seemed to be higher
Speaker 1: than just stored at a level. So we always view
Speaker 1: portfolio through the prism of income. All right, Katerina, great,
Speaker 1: great stuff. As always, always appreciate getting your perspective. Katerina Semonetti,
Speaker 1: Senior vice president, a private wealth advisor at Morgan Stanley
Speaker 1: talking to her clients today, holding some hands today snp
Speaker 1: off three point. Let's get to our next guest, Matt,
Speaker 1: because I don't know what this guy does. Chris Campbell.
Speaker 1: He's a chief strategist for Kroll. I know Kroll as
Speaker 1: like the security people, right, yes, okay, but before joining Kroll,
Speaker 1: he actually had a real job. He was a former
Speaker 1: assistant secretary from the U. S. Department of Treasury. Chris,
Speaker 1: what does a assistant secretary for the U S? N correct? Like,
Speaker 1: what did you do for like day to day? What
Speaker 1: did you do? Yes, it was it was a very
Speaker 1: busy time seventeen and eighteen. We uh, you know, we
Speaker 1: had reregulation of Dodd frank And and Starman's Oxley and
Speaker 1: tax performers underway, and so many other things, cyper security
Speaker 1: and uh, you know, it's a great variety of things.
Speaker 1: There's no question it was. It was very difficult time,
Speaker 1: amazing time, but also I you know, as I like
Speaker 1: to point out, there was good economic time as well.
Speaker 1: The country was doing pretty well at that time. What
Speaker 1: I was gonna say, it wasn't that difficult about how
Speaker 1: about being the assistant treasure secretary. Now, you know, I
Speaker 1: have got a lot of respect for my friends at
Speaker 1: Treasury and I wished them a lot very well. So
Speaker 1: you also interacted with FED chair J. Pal Um during
Speaker 1: that time through you know, various type types of meaning
Speaker 1: what do you expect to hear from our Federal Reserve
Speaker 1: chairman this week? I mean it is it's ugly out there.
Speaker 1: As it relates to inflation, yeah, there's no question. Like
Speaker 1: I you know, I've been saying for a long time
Speaker 1: the inflation was unfortunate, not gonna be transitory, and unfortunately
Speaker 1: I was right. Um. You know, I have great respect
Speaker 1: for cham pale Um, and I mean you guys basically
Speaker 1: put him in there right we did was through February.
Speaker 1: So yeah, he came in and under the Trump administration, uh,
Speaker 1: you know, and was renominated by President Biden. Um, look
Speaker 1: at it's and confirmed. You know it's it's a It's
Speaker 1: a very difficult job. There's no question about it. Uh.
Speaker 1: Chairman Powell is a consensus chairman, always has been. I
Speaker 1: think one thing I always say it's great about him
Speaker 1: as he's able to talk about the economy in ways
Speaker 1: that it's really approachable and kind of democratizes the way,
Speaker 1: you know, otherwise very very unapproachable topics. But he has
Speaker 1: an incredibly difficult job, and I believe unfortunately he's this
Speaker 1: move too slow. Um. So I think that uh, he's
Speaker 1: now faced with an impossible set of of of challenges
Speaker 1: and um, he's either gonna have to choose to precimpitly
Speaker 1: raise rates or and drive the economy in the in
Speaker 1: the tank, or live with inflation and the and the
Speaker 1: really difficult things that are going to happen with that. Now.
Speaker 1: I just wondered, like, how does a failed to reserve
Speaker 1: board some smart people there, led by j Pal, how
Speaker 1: do they fall behind the curve? They do their best
Speaker 1: on economic forecasting. Um, you know I can Sherman Pal's
Speaker 1: uh approach to the FED is he's he's most he's
Speaker 1: really a consensus builder, and he's a consensus guy. He's
Speaker 1: very even keel um and uh, you know that approach
Speaker 1: would in almost every other circumstance would work. But this unfortunate.
Speaker 1: Right now, this is a word a time where I
Speaker 1: think inflation is just you know, it got away from them.
Speaker 1: They forecasted inappropriately, unfortunately, and now there's a real challenge
Speaker 1: ahead and they're gonna have to find ways of either
Speaker 1: shocking the system by raising rates precipitously, um, because there's
Speaker 1: so much outside of their control, supply chains, um, you know, Russia, UM, China, uh,
Speaker 1: kind of regulation and I mean I was gonna just
Speaker 1: point out that it's not all about the FED. I
Speaker 1: know that. Um. There was there were a few days
Speaker 1: a couple weeks ago when the administration wanted us to
Speaker 1: believe that the FED was solely responsible for inflation or deflation,
Speaker 1: like passing the buck. But obviously there are other things.
Speaker 1: If you spend five trillion dollars in a year, if
Speaker 1: you um, you know, try and regulate oil companies out
Speaker 1: of existence, then you're gonna have some, um, some some
Speaker 1: some feedback from that. Right. All I can tell is
Speaker 1: you're a very smart guy. No, there's like, there's no question.
Speaker 1: I mean I got you know, from my advantage point,
Speaker 1: Congress and passed and spent way too much money. Um.
Speaker 1: You know, there was some of that that's really necessary.
Speaker 1: That the government came in a shutdown the economy, so
Speaker 1: there was there was a real challenge there for a while.
Speaker 1: But that we Congress certainly overspent um and both on
Speaker 1: the fiscal and monitary side and quantity of using and
Speaker 1: it continued for so long, and so there you know,
Speaker 1: on both sides of the of the equation are to
Speaker 1: blame here um, And now we're in significant debt. What
Speaker 1: one thing is not talked about is that you know
Speaker 1: that again the impossible challenge of raising a just rates
Speaker 1: is also going to make the fiscal side almost impossible
Speaker 1: because now most of us are THEAXX period dollars that
Speaker 1: they're gonna be collected are going to be spent on
Speaker 1: servicing our nation's debt. And doesn't seem like people talk
Speaker 1: about fiscal solution or a policy solution to this. We
Speaker 1: only talk about what can the Fed do? And I appreciate.
Speaker 1: That's fun for us. We talked about the FED all
Speaker 1: day long. Um. But there the difficulty is in Washington
Speaker 1: as well. Right, they can't come in and just cut
Speaker 1: taxes and um, well they can't do anything stimulative, right,
Speaker 1: Otherwise that risks boosting inflation even further. Yeah, Like, I mean,
Speaker 1: they're they're gonna I know, I know my friends and Washington,
Speaker 1: I've worked with them a long time. They're gonna want
Speaker 1: to spend more money, There's no question. And as the
Speaker 1: economy continues to degrade, they're gonna want to provide assistance
Speaker 1: to families, and so it's gonna be a great pressure
Speaker 1: on them to spend more money. You know. But fast
Speaker 1: forward to November, likely is going to be a divided government. Um.
Speaker 1: And really in those situations, if there is a willingness um,
Speaker 1: you know, the president being democratic, perhaps the Congress being
Speaker 1: Republican at that time, there could be a bigger solution
Speaker 1: that we we could be we could be seeing. But
Speaker 1: until then, I see nothing happening in Washington. DC is
Speaker 1: really broken. Yeah, I guess, Chris, how about a recession?
Speaker 1: Is that something that you're talking to your clients about
Speaker 1: is a real risk and if so, when, maybe so,
Speaker 1: I think it's gonna happen sooner rather than later. Um.
Speaker 1: You know, even again, I'm talking about before. The FAT
Speaker 1: has an impossible set of choices ahead of them. But
Speaker 1: one of the choices they have, and likely the choices
Speaker 1: they're gonna take, is a is a participitous increase in
Speaker 1: in interest rates that is for sure going to lead
Speaker 1: to us at recession. And I like to say, Um,
Speaker 1: there's about half of our country who live paycheck to paycheck,
Speaker 1: and so if we go into recessionary times and if
Speaker 1: we can't get inflation under control, we're in stiflation. That
Speaker 1: means that the majority of our our our fellow Americans,
Speaker 1: you're not gonna be able to afford food and gas
Speaker 1: and clothing. That's gonna be a real challenge. It's gonna,
Speaker 1: you know, put socio economic pressure, economic pressure and everything
Speaker 1: else absent what the markets are going through. So what
Speaker 1: do you expect from the FED on Wednesday and the
Speaker 1: next few meetings. I think they're going to have to
Speaker 1: start shocking um. And it's it's uncharacteristic of Cherman Powell
Speaker 1: and this FED, but I just can't see him doing
Speaker 1: it right. You can't see him coming out in surprising markets.
Speaker 1: So now as we ratchet up expectations for seventy five,
Speaker 1: he's gonna have to do a hundred like I like,
Speaker 1: I just I think he's gonna have to go beyond
Speaker 1: fifty um do something. I don't think he's you know
Speaker 1: that the German pal is not Paul Wolkers. It's not
Speaker 1: going to follow that path. But I think he has
Speaker 1: to do some things that are that are going to
Speaker 1: be uncharacteristic of him and what the markets don't expect
Speaker 1: in order to do something that's going to get inflation
Speaker 1: under control. Chris, good stuff, man, good stuff. You're coming back.
Speaker 1: By by the way, we just kind of did a
Speaker 1: little vote. You're gonna come back. You're pretty good, guess.
Speaker 1: Chris Campbell, chief strategist for Cool. We like to talk
Speaker 1: about education. Two NBA from the Thunderbird School of Global Management.
Speaker 1: I love that, uh, and then a bachelors from the
Speaker 1: University of California at Santa Barbara. I think students should
Speaker 1: pay the state of California to go to Santa But
Speaker 1: that's how beautiful do Santa Barbara is mean, I know,
Speaker 1: but they should pay more because they're literally on the
Speaker 1: beach and one of the most beautiful spots in the country.
Speaker 1: Good stuff there. Let's switch gears a little bit talk
Speaker 1: geo politics, and there's absolutely no one better to do
Speaker 1: that with than Jack Divine. He's a founding partner and
Speaker 1: president of the ark And Group. Awesome. We're talking a
Speaker 1: thirty two year veteran of the c I, a former
Speaker 1: acting CIA Director of Operations, and headed CIA's Afghan Task
Speaker 1: Force from five to eighty seven. Remember kids, that was
Speaker 1: when the Soviets were there. Jack. You know you're also
Speaker 1: the author of a book that I read last year,
Speaker 1: Spymaster's Prison to Fight Against Russian Aggression. Good stuff. I
Speaker 1: highly recommend it. I cannot really fathom how much President
Speaker 1: Putin has miscalculated, seemingly in Ukraine. What do you make
Speaker 1: of the whole situation here over the last four months. Well,
Speaker 1: I don't think you're the only one surprised. I mean,
Speaker 1: I'm sure he is UH and his intelligence with salty
Speaker 1: and there's no question about it. The key question was
Speaker 1: whether or not the Ukrainians would fight, and I think
Speaker 1: he grossly underestimated that because of the relatively little resistancy
Speaker 1: UH faced in fourteen when he went into the Crimea
Speaker 1: and the thumb buss. So I think he thought he
Speaker 1: had a cake walk, and I think he's surprised by
Speaker 1: his own army. I think he thought he had a
Speaker 1: drugger army. Is he's invested in high end weaponry but
Speaker 1: didn't look at the basic blocking and tackling of logistics
Speaker 1: and those things that made you to seas As Grant
Speaker 1: win the civil war. Alright, so he's made some mistakes.
Speaker 1: But how is this likely to play out? How Jack,
Speaker 1: do you expect this to end? Well, I think everybody thought,
Speaker 1: you know, let's get Zelisio on a plane before it's
Speaker 1: too late. And this is in the first couple of weeks,
Speaker 1: but it quickly became clear that's what we're talk about
Speaker 1: a second ago, that the army and its structure this week,
Speaker 1: So the Russians basically got put pushed back. Now, I
Speaker 1: think you're at a point where the Russians are using
Speaker 1: heavier artillery and so on, and they're making slow but
Speaker 1: steady progress, but it is slow and bloody. I also
Speaker 1: think there's a catch up here. I think as the
Speaker 1: artillery has arrived through the uh for the Ukrainians, they're
Speaker 1: going to be pushing back again. So you're going to
Speaker 1: see more counter pushing in somewhere not too far out,
Speaker 1: I would say, before before the end of the year,
Speaker 1: if not Thanksgiving. You're going to find somewhat of a
Speaker 1: stalemate where they can make some gains and then they
Speaker 1: pushed back. Ukrainians make gains and they get pushed back.
Speaker 1: We haven't reached that point and there, but it will arrive,
Speaker 1: and that because the Russians cannot win over the occupy
Speaker 1: the Ukraine and Ukrainians unfortunately won't be able to reoccupy
Speaker 1: all of the suratory without significant cause. So I think
Speaker 1: we're probably looking very soon to the stalemate where everyone
Speaker 1: was going to feel that this is going to be
Speaker 1: a battle as far as it goes. There will may
Speaker 1: not be a negotiated settlement both sites made. Just lower
Speaker 1: the firing level and it will go on like it
Speaker 1: has Pointing four team. But we're looking now, I think
Speaker 1: it closely where the standoff will be. All right, Well,
Speaker 1: that's it's obviously a tragedy in so many ways, but
Speaker 1: I love to get your your take on that. Jack.
Speaker 1: Let me also ask you what you think about what
Speaker 1: we're seeing in this country and the market fallout from
Speaker 1: that inflation at eight point six percent, the highest since
Speaker 1: the early eighties, the markets really tanking for the third
Speaker 1: day in a row. You're speaking, I believe you're speaking
Speaker 1: at the S three Air conference at the New York
Speaker 1: Stock Exchange. It's a company on whose board you serve
Speaker 1: and has become really noted in the financial industry for
Speaker 1: it's short data. What are you talking about out there, Well,
Speaker 1: we already get the experts that are at the Summer
Speaker 1: that address that. I'm more of a military political analysts,
Speaker 1: but I would say, frankly, if we're looking in the
Speaker 1: context of the Ukraine, it's it's there's a cost here,
Speaker 1: we're paying that cost. But some are the some are
Speaker 1: the Russians. But there are overarching issues in the economy
Speaker 1: that I think many many experts on your show understand.
Speaker 1: You know, where are we going to go with the
Speaker 1: interest rates? And I think be enabled to monitor various
Speaker 1: um UH variables rather as UH as the Street Group does,
Speaker 1: enable analysts to have a better handle on the speed
Speaker 1: in which variations are taking place. If you want to
Speaker 1: gut reaction. My own gut reaction is the platon is
Speaker 1: going to be with us a while an interest increased
Speaker 1: interest rates are coming down down the road, and it's
Speaker 1: any going to be a difficult year, not only for
Speaker 1: the United States, not only for Russia Ukraine, but probably
Speaker 1: probably worldwide, including the Chinese. Hey Jack, you just mentioned
Speaker 1: the Chinese. I wonder what they're the Chinese. What do
Speaker 1: you think China is taking away from what's happening in
Speaker 1: Ukraine as it relates as Taiwan. So here we're seeing
Speaker 1: a lot of static and and chest speeding uh and
Speaker 1: from China right now about they'll they'll go to the
Speaker 1: last man to preserve there are countries as if we
Speaker 1: were going to attack. My senses, they looked carefully, very carefully,
Speaker 1: what is happening to the Russians? And I think they're
Speaker 1: asking itself, we don't want to make the mistakes Putin
Speaker 1: made that looking at Taiwan, attacking an island, by the way,
Speaker 1: I will tell you a much more difficult thing than
Speaker 1: the land work, and looking at the cost of the
Speaker 1: Russians now paying and the cost that they would pay,
Speaker 1: and it would throw off their economic game immensely. My
Speaker 1: honest opinion is that I think when they looked at it,
Speaker 1: whatever they they had in their mind, a lot of
Speaker 1: people talked about. But my my view is it's pushed
Speaker 1: off to an indefinite period. I think they need they're
Speaker 1: more concerned about solidifying or economic and power in the region. Uh,
Speaker 1: but a war would totally disrupt their economy, totally disrupt
Speaker 1: their placed in the world. So I think that's it's
Speaker 1: further off and a lot can happen between and many
Speaker 1: of the military and trying to think they need to
Speaker 1: have a Taiwan part of it. So I think they've
Speaker 1: they've seen this and this is actually helpful and not
Speaker 1: having a confrontation with them. All right, Jack, awesome stuff
Speaker 1: as always, Jack Divine, founding partner president of the ark
Speaker 1: And Group. They are obviously obsessed with what's going on
Speaker 1: in markets today, and that's not just what's happening in
Speaker 1: stocks and bonds. Crypto has become an increasingly important part
Speaker 1: of fine financial markets. Nick Carter joins us right now,
Speaker 1: who um kicked it off? And Nick correct me if
Speaker 1: I'm I'm wrong here. As one of the first analysts
Speaker 1: on the street following crypto before he founded his venture
Speaker 1: crypto venture company Castle Island and also founded coin Metrics. UM,
Speaker 1: what is going on? It's not just Bitcoin that's failing
Speaker 1: as an inflation hedge. I note that gold also hasn't
Speaker 1: performed terribly well. But the drops that we've seen in
Speaker 1: crypto UM far outperform or underperform anything else. Why well, UM,
Speaker 1: then thanks for having me on. Yeah, the crypto markets
Speaker 1: going through its own little de leveraging cycle here. UM,
Speaker 1: there are a bunch of lenders that are blowing up
Speaker 1: and uh, in fact, some of their positions are visible. Uh,
Speaker 1: their liquidation thresholds are visible on the blockchain, and so
Speaker 1: there's an element of stop hunting that's also going on
Speaker 1: in the market right now with UM, So that would
Speaker 1: probably explain some of the reflexivity. But yes, we are
Speaker 1: having our own little de leveraging cycle, obviously not helped
Speaker 1: by the fact that financial conditions are getting very, very tight.
Speaker 1: So it was already tough before Tara us D and
Speaker 1: Luna that UM catastrophic collapse. Is that starting to UM
Speaker 1: to spread? Is there any contagion effect from that, because
Speaker 1: now we see that Celsius is also barred money being
Speaker 1: taken out and moved around. Yeah, entirely. Yes, there's a
Speaker 1: daisy chain of risk care and uh that's precisely correct.
Speaker 1: Its traces from Tara, which was um its peaked the
Speaker 1: largest sort of defied lenning protocol, the anchor protocol within Tara.
Speaker 1: That was really the reason it blew up was was
Speaker 1: the was the largest UM lender in the DeFi space,
Speaker 1: and a bunch of sort of centralized lenders that take
Speaker 1: retail deposits and offer a yield on that they were
Speaker 1: putting client funds in it. And Celsius, which is this
Speaker 1: big crypto lender which is now paused withdrawals. They were
Speaker 1: probably the biggest user of the anchor protocol of Terra
Speaker 1: and so now that terror fails, Celsius suffered a ton
Speaker 1: of withdrawals. Uh, they're clearly distressed. We're not true if
Speaker 1: it's a liquidity or a solvency crisis, and then the
Speaker 1: next daisy chain would be other lenders that have exposure
Speaker 1: or relationships with Celsius um and then other lenders that
Speaker 1: also suffer outflows due to the confidence crisis. So there's
Speaker 1: your precisely right, there's a daisy chain of risk here,
Speaker 1: and we're seeing it play out really really quickly. Hey, Nick,
Speaker 1: I know, as as Matt mentioned, you were at Fidelity
Speaker 1: as the first crypto analysts there. I'd love to get
Speaker 1: your perspective about as you look at the sell off here,
Speaker 1: these are the other assets of crypto. What percentage from
Speaker 1: your perspective do you feel like is institutional ownership of
Speaker 1: crypto across the board versus retail today? How institutionalized has
Speaker 1: it become? It? Well, it's it depends what kind of
Speaker 1: institution you refer to. Obviously, we have a very small
Speaker 1: amount of sovereign ownership. Um, we have some corporates UH
Speaker 1: that own bitcoin. That's probably the largest sort of institutional
Speaker 1: tranche there. And then of course you do have asset
Speaker 1: management products created by the likes of Fidelity. Overall, say,
Speaker 1: the crypto market is still very retail driven, um and UM.
Speaker 1: You know, if it were more institutionalized, i'd expect to
Speaker 1: see the volatility attenuate, and I would expect to see
Speaker 1: uh softer peaks and less aggressive bottoms through rebalance, and
Speaker 1: we're not really seeing that. To me, it's still very
Speaker 1: retail driven. Remember, it's as small as a class as
Speaker 1: of right now. It's collectively all the crypto assets are
Speaker 1: worth less than a trillion dollars, so you know, it
Speaker 1: doesn't really have the liquidity profile to absorb you know,
Speaker 1: the largest institutions, But I mean since I've certainly seen
Speaker 1: a lot more half type for it, I just haven't
Speaker 1: seen a ton of institutional option in size. Well that
Speaker 1: could change now obviously, given the crypto winter has gone,
Speaker 1: UM has turned into like a polar vortex. I want
Speaker 1: to ask about something maybe a little more esoteric for
Speaker 1: many of our listeners. But people in crypto have been
Speaker 1: waiting for the merge to happen at Ethereum, which would
Speaker 1: change UM the verification system from proof of work to
Speaker 1: proof of steak. There have been a couple of hurdles lately. UM.
Speaker 1: There are concerns that a lot of the steaking is well,
Speaker 1: it's too UM concentrated, and the difficulty bomb that had
Speaker 1: been planned to help move this along has been delayed.
Speaker 1: What do you think about proof of steak in the merge? Yeah,
Speaker 1: that's well. Prior to sort of everything falling apart in
Speaker 1: crypto markets, that was the biggest catalyst that people were
Speaker 1: looking for, in which it was expected in the fall
Speaker 1: of this year, and for a serium, it's a big
Speaker 1: part of the story because they had determined that they
Speaker 1: were going to make this transition from day one. It
Speaker 1: just took some five or six years to get there.
Speaker 1: Um and it's a key part of the ethereum. Uh,
Speaker 1: you know, the pr positioning, let's say, in terms of
Speaker 1: moving away from the energy intensive profork and moving to
Speaker 1: privo state model. There's definitely some snags there because um,
Speaker 1: I would say provo stake is just less battle tested
Speaker 1: in the wild. Um And, yeah, it does raise centralization risks,
Speaker 1: um either through these large staking pools that have these
Speaker 1: economies of scale so you have concentrated liquidity, or through
Speaker 1: custodians that a mass lots of the coins when they
Speaker 1: do the staking. So you know there's concerns there. But UM,
Speaker 1: all right, Nick, that's great stuff. We appreciate. Check back
Speaker 1: in with you later on all things crypto. Nick Carter
Speaker 1: founding partner Castle Island Ventures. He went the University of
Speaker 1: St Andrew's and University of Edinburgh, so it begs the
Speaker 1: question how many times did he play the old course?
Speaker 1: It's St Andrew's will get that next time we talked
Speaker 1: to him. Thanks for listening to the Bloomberg Markets podcast.
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Speaker 1: on Twitter at Matt Miller three. On Fall Sweeney, I'm
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