Speaker 1: I remember just hearing about bitcoin so many years ago,
Speaker 1: and no one paid attention to me. It's the big
Speaker 1: take from Bloomberg News and I heart radio. I'm West
Speaker 1: Cosova today. Crypto Is it a failed experiment or still
Speaker 1: the way of the future. If you found yourself crypto
Speaker 1: curious lately, maybe because of all the news around the
Speaker 1: spectacular fall of Sam Bankman freed in is ft X Exchange,
Speaker 1: We're with you. Even though bitcoin has now been around
Speaker 1: since two thousand nine, I admit I still struggle to
Speaker 1: get my head around how it works. Our producers asked
Speaker 1: people in the streets in a few cities what they
Speaker 1: want to know about crypto, and one question kept coming
Speaker 1: up again and again, only one question, What is crypto?
Speaker 1: What is crypto? What is it? Because I have no
Speaker 1: idea what that actually is, we don't put the money,
Speaker 1: so we asked Bloomberg opinion columnist Matt Levine to help
Speaker 1: us out. So at its core, it's a sort of
Speaker 1: centralized permission in form of money. How do we send
Speaker 1: money to people without relying on banks, without relying on
Speaker 1: the central intermediary mass day job is making sense of
Speaker 1: the world of finance. So he's no stranger to weird
Speaker 1: things people do. Recently, though, he turned his attention to
Speaker 1: crypto in a forty thousand word opus that took over
Speaker 1: an entire issue of Bloomberg Business Week. Read it. It
Speaker 1: is very worth your time. But before we get started,
Speaker 1: let's take a moment to explain a few common crypto
Speaker 1: terms you heard Matt mentioned just now, because you're gonna
Speaker 1: hear them in this episode. Unlike traditional currencies that are
Speaker 1: controlled by the government I think the Federal Reserve or
Speaker 1: Treasury Department, Bitcoin and other cryptocurrencies are decentralized and distributed.
Speaker 1: That means transactions are made and kept track of across
Speaker 1: a network of computers anyone can join by downloading the
Speaker 1: open source software. There can be millions of computers on
Speaker 1: a network sharing the same data. Another important thing crypto
Speaker 1: is permissionless. If I want to sell you a crypto
Speaker 1: token and you want to buy it, the transaction can
Speaker 1: happen between us without having to go through a third
Speaker 1: party like a bank or a regulator of any kind.
Speaker 1: And crypto is designed to be secure and anonymous. Your
Speaker 1: identity on a given currencies network is an encrypted string
Speaker 1: of numbers and letters. At the heart of it. All
Speaker 1: is what's called the blockchain. You'll hear that term a lot. Essentially,
Speaker 1: a blockchain is an encrypted, up to date ledger of
Speaker 1: every crypto transaction. Anyone on the network can see it
Speaker 1: and check it on their own computer. Every ten minutes
Speaker 1: or so, the latest transactions are added to the ledger.
Speaker 1: That segment of crypto history is called a block, and
Speaker 1: that block is then added to the long chain of
Speaker 1: bocks that came before it, Thus black chain. The blockchain
Speaker 1: lets you see transactions stretching back in time, informs a
Speaker 1: permanent record that can't be changed. That's the idea anyway.
Speaker 1: So how's all this working out in real life? Matt
Speaker 1: Levine joins me now with some answers. Matt Levin, thanks
Speaker 1: for being here, Thanks for having met. When the first cryptocurrency,
Speaker 1: Bitcoin was released, what was the problem it's creators were
Speaker 1: trying to solve. Bitcoin is a clever bit of like
Speaker 1: cryptographic design to allow people to send money to each
Speaker 1: other in a way that that doesn't rely on a bank.
Speaker 1: It sort of relies on the sort of contribution of
Speaker 1: the entire community to make sure that the ledger of
Speaker 1: money is correct. So that's kind of the basic idea,
Speaker 1: and then since then it's branched off into a lot
Speaker 1: of directions. One is there different kinds of ways to
Speaker 1: send digital money with different features. But another is that people,
Speaker 1: you know, build on that basic idea to say, well,
Speaker 1: what if we had, you know, our entire financial system
Speaker 1: that had the same sort of decentralized permission list properties.
Speaker 1: So what made you want to write for words digging
Speaker 1: into those questions. The way I think about it is
Speaker 1: there's a lot of technology and crypto that is like,
Speaker 1: like the pipes are exposed, you kind of see the
Speaker 1: workings of it. Like if you have money at a bank,
Speaker 1: I know some stuff about how bank payments work, and
Speaker 1: also about how like your money at a bank, it's
Speaker 1: just like the liability of the bank, and like how
Speaker 1: the sort of accounting for that works, and what the
Speaker 1: sort of backstop of that is and why you can
Speaker 1: trust that the money is there. But for most people
Speaker 1: you don't need to know that. You can just like
Speaker 1: you have money at the bank, and it's just sort
Speaker 1: of like this accepted, trusted, like normal thing in crypto.
Speaker 1: I think there's a lot of emphasis on people want
Speaker 1: to tell you a lot about how the blockchain works.
Speaker 1: And like exactly how the cryptography works. That you have
Speaker 1: the money the victoins in the ledger, right, you're expected
Speaker 1: to know more about the pipes to make any use
Speaker 1: of it. And so I think that turns a lot
Speaker 1: of people off, like completely, rightly, right, like completely it
Speaker 1: is completely sensible to say I don't want to know
Speaker 1: all that much, like my bank account has worked. So,
Speaker 1: I mean, one reason I wrote the story is to
Speaker 1: is to try to explain all of that piping in
Speaker 1: one place and in a way that's not like a
Speaker 1: wild eyed person grabbing you by the shoulders and shaking
Speaker 1: you and saying you need to know about the blockchain.
Speaker 1: But just like if you want to know the blockchain,
Speaker 1: here it is, and like try to um, you know
Speaker 1: abs straight away from it. So if you don't want
Speaker 1: to know about the blockchain, you don't have to know
Speaker 1: that much read it. The barriers to entry to learning
Speaker 1: about crypto seemed very high. You're learning about like the
Speaker 1: database architecture of how they keep the ledger, and like
Speaker 1: you don't have to do that with a bank. The
Speaker 1: other thing that is very much an important presence in
Speaker 1: crypto is that the price of bitcoin went up from
Speaker 1: zero to tens of thousands of dollars over the course
Speaker 1: of like the first you know, ten or so years
Speaker 1: of the existence of crypto, and that gets people thinking
Speaker 1: other thoughts like I should buy a bitcoin, you know,
Speaker 1: or I should buy some other crypto that will also
Speaker 1: go out that much. And so it is in practical terms,
Speaker 1: just like the the idea of crypto is really inseparable
Speaker 1: from just financial speculation, and if you're in it for
Speaker 1: financial speculation, you make care less about some of this
Speaker 1: philosophical decentralization stuff. And I guess it's one question about
Speaker 1: crypto that differentiates it from traditional currency, the dollar, where
Speaker 1: there's speculation about the dollar and it can move up
Speaker 1: and down to value, but it's not primarily there to
Speaker 1: use as an investment that you hope will appreciate. So
Speaker 1: is cryptocurrency a currency or is it an investment? Yeah,
Speaker 1: I mean I think it's it's almost not at all
Speaker 1: a currency at least like the big ones like bitcoin
Speaker 1: and ethereum are really kind of have the property of
Speaker 1: being almost like stock in some sort of decentralized company,
Speaker 1: some project that you're betting will do well, and if
Speaker 1: the project does well, then the tokens will be worth
Speaker 1: a lot of money and you get like a sort
Speaker 1: of equity like return. And in fact, these tokens often
Speaker 1: turn out to be kind of correlated with um with
Speaker 1: tex stocks, because like it turns out there kind of
Speaker 1: our tex stocks. Bitcoin is a little bit like that.
Speaker 1: It's a little bit it has other functions that sort
Speaker 1: of people talk about digital gold, where bitcoin is this
Speaker 1: like store of value where some number of people are
Speaker 1: buying bitcoin as a hedge to inflation or just like
Speaker 1: a you know, a thing that they think is a separate,
Speaker 1: like safe place to store value. And so it's like
Speaker 1: a little bit of currency like properties. But what it
Speaker 1: isn't is a way to send cash digitally. It's like
Speaker 1: not I say this, and then bitcoin people get mad
Speaker 1: at me, But it's like not really an ideal way
Speaker 1: to buy a sandwich, right, you can do it, you know.
Speaker 1: I've been to like barber shops that take bitcoin, and
Speaker 1: like online there are more places that take bitcoin um
Speaker 1: although it's still not you know, universal, But because bitcoin
Speaker 1: fluctuates so much in value, is you said, it's not
Speaker 1: like the best you know, not the best currency right
Speaker 1: for for much of its existence and mostly went up
Speaker 1: in value and so if you had bitcoin because you
Speaker 1: thought bitcoin would go up in value, it would be
Speaker 1: kind of silly to spend it on a sandwich. So
Speaker 1: it doesn't really have like a supercurrency like function. That's
Speaker 1: one thing I wanted to ask you about, which was
Speaker 1: the idea of the inherent value of crypto or really
Speaker 1: of any money. When you think about a dollar, Uh,
Speaker 1: it has value because I suppose it's tied to the
Speaker 1: state of the United States, and it's been a pretty
Speaker 1: good bet. What is in the case of say bitcoin,
Speaker 1: the thing that you reference it to to say that
Speaker 1: it has value. Yeah, I mean it's the same. There's
Speaker 1: some sort of like social collective project and some social
Speaker 1: collective acceptance that like, this is the currency of that project. Right,
Speaker 1: And in the US, the project is you know, big
Speaker 1: and has an army and a two hundred years old
Speaker 1: or whatever. Like the project that the US dollar is
Speaker 1: linked to is pretty well understood, and you know, there's
Speaker 1: a central bank that tries to maintain the value of
Speaker 1: the dollar. In bitcoin, it's like this kind of new
Speaker 1: utopian crypto project, right. But it's a lot of people, right,
Speaker 1: it's a lot of people online who believe in this
Speaker 1: project and believe, like in the value of bitcoin a
Speaker 1: cool piece of technology, or as a way to fight censorship,
Speaker 1: or as an actual way to transfer money easily. Like,
Speaker 1: there are a lot of different sets of beliefs about it,
Speaker 1: but it's you know, fundamental. The value comes from like
Speaker 1: a bunch of people in a market working out how
Speaker 1: much they think it's worth twelve years in. It's like,
Speaker 1: it seems plausible that like a lot of people believe
Speaker 1: it's worth something in a fairly robust way. You know.
Speaker 1: One thing I would say about stocks is that there
Speaker 1: is some kind of floor under the value of a
Speaker 1: regular stock at its cash flows, right, like any more
Speaker 1: or less. Right, Like, if you have a stock trade
Speaker 1: like a penny, you can buy all of it and
Speaker 1: then you own the company and then you can like
Speaker 1: you know, use its factories or solids factories or whatever.
Speaker 1: But there's no cap on the price of a stock,
Speaker 1: right If people really really like the stock, then it
Speaker 1: can go to, you know, whatever price you want. And
Speaker 1: the fact that it's cash flows don't support that price
Speaker 1: is like, you know, sort of an interesting academic point,
Speaker 1: but it doesn't necessarily affect the market price, at least
Speaker 1: in the short term, and so yeah, I mean that's
Speaker 1: true a bitcoin, but it's also true of like you know,
Speaker 1: like loosely speaking, it's true of gold as well, right,
Speaker 1: I mean, like this is like a thing that exists
Speaker 1: in the financial world where like things have value because
Speaker 1: there is a community of people who accept that they
Speaker 1: have value, and it's useful for people to have this
Speaker 1: sort of accepted thing that carries value. And you know,
Speaker 1: like the first day of bitcoin, it sounds insane to
Speaker 1: be like, this is going to be a new thing
Speaker 1: that will be widely accepted to have value. But you know,
Speaker 1: years and years in like this turned out to be
Speaker 1: true that people widely accepted at that value. But I
Speaker 1: suppose if we had a purely barter economy where you
Speaker 1: come and fix my sink and I give you a
Speaker 1: sandwich and we agree that that's the transaction, and then
Speaker 1: one day I said you, well, I'm not going to
Speaker 1: give you a sandwich. I'm gonna give you this piece
Speaker 1: of paper which represents what I think is the value
Speaker 1: of the sandwich. You would say, well, that's crazy, And
Speaker 1: yet that's kind of what we do now because everyone
Speaker 1: agrees in it. So is it that much different with bitcoin?
Speaker 1: There's like a sort of deep answer to that question,
Speaker 1: which is that like dollar sort of represented debt, right,
Speaker 1: like a dollar represents I think in the first instance,
Speaker 1: it's it's you know, the dollar in my beap accunting
Speaker 1: is like a dollar the bank owes me. And in theory,
Speaker 1: like every dollar kind of works that way. Every dollar
Speaker 1: is a is a debt obligation, and you know, broadly
Speaker 1: speak king philosophically speaking, a dollar sort of represents the
Speaker 1: obligation of somebody else in society to do one dollars
Speaker 1: worth of work for you. Bitcoin is like a little
Speaker 1: different because it's because no bitcoins are debts, right, Like
Speaker 1: bitcoins exist on their own. They're not like a leisure
Speaker 1: entry at a bank where the bank has to give
Speaker 1: you a bitcoin. It's just its own thing. But like, yeah,
Speaker 1: like in theory, a bitcoin is the same sort of
Speaker 1: thing where it's like a claim on you know, on
Speaker 1: resources and someone doing something for you in the future,
Speaker 1: where like if I give you a bitcoin, you'll do
Speaker 1: you know, seventeen thousand dollars worth of you know, journalism
Speaker 1: for me or whatever. Right, and uh not everyone accepts that, right,
Speaker 1: Like a lot of people don't want to be hidden
Speaker 1: bitcoin for you know, often for good reasons, but like
Speaker 1: there's still enough of a sort of exchange mechanism where like,
Speaker 1: if I have a bitcoin, I can sort of count
Speaker 1: on getting you know, seventeen thousand dollars worth of sandwiches
Speaker 1: for it at some point in the future. My conversation
Speaker 1: with Matt Living continues after the break, I thought that
Speaker 1: it's one currency that they can really not duplicate. I
Speaker 1: set up a coin based account and then decided that
Speaker 1: I couldn't be asked to get my ID documents because
Speaker 1: I thought the whole point of crypto is it's anonymous. Well,
Speaker 1: it's supposed to be unhappable, uh and out of the
Speaker 1: hands of centralized authorities, and that's one of the selling points.
Speaker 1: These cryptocurrencies uprate and are able to operate because people
Speaker 1: trust the system is valid and they believe that it
Speaker 1: will continue to be valid, that the system works. And
Speaker 1: yet it's under attack a lot, like people lose bitcoin,
Speaker 1: people hack it, uh, and and it fails quite a bit.
Speaker 1: I would dry a distinction there. So there are like
Speaker 1: crypto protocols of which you know, Bitcoin is the most famous,
Speaker 1: and I don't think that a real bitcoin booster would
Speaker 1: say that you need to trust in the protocol, right,
Speaker 1: and the idea of it kind of that the protocol
Speaker 1: is all open source software, you can see how it runs.
Speaker 1: The ledger is all you know, open and transparent. It's
Speaker 1: all cryptographically encoded in a way that you can prove
Speaker 1: that you own a bitcoin essentially, and so you sort
Speaker 1: of have to trust that the system will continue operating well.
Speaker 1: And like the reason you would trust that is because
Speaker 1: of essentially like economic incentives that are built into the
Speaker 1: open protocol. But compared to anything else in your life,
Speaker 1: it is a relatively low trust thing. It's a it's
Speaker 1: a system where you don't really have to take things
Speaker 1: on faith, where you can kind of like read the
Speaker 1: code yourself, read the blockchain yourself, and be really really
Speaker 1: satisfy yourself to a pretty high to greet of certainty
Speaker 1: that everything is working as that's supposed to. And so,
Speaker 1: like you know, people in the cryptor world often are
Speaker 1: sort of philosophically opposed to trust. They say, we don't
Speaker 1: want to trust banks, We don't wanta have to trust anyone.
Speaker 1: You want to be able to trust our own eyes,
Speaker 1: objective evidence on like the code, you know, and like
Speaker 1: that kind of works like more or less like with
Speaker 1: a lot of exceptions, but like Bitcoin has not been hacked, right,
Speaker 1: Like the one has ever hacked the bitcoin blockchain. Some
Speaker 1: of the protocols have been like smart counting. There's like
Speaker 1: they're hacking kind of thing. Blockchain is basically it's court.
Speaker 1: It's like a list of transactions, and it's a list
Speaker 1: of transactions that's maintained in a way where everyone in
Speaker 1: the bitcoin community kind of agrees on the list, and
Speaker 1: there is a timestamp, like cryptographically timestamp, so you know
Speaker 1: which transactions happened when, and it's all you know, the
Speaker 1: word that they use is immutable, right, It's like no
Speaker 1: one can mess with the list. But the thing that
Speaker 1: is more sellient right now is that it turns out
Speaker 1: that a lot of people in crypto don't actually really
Speaker 1: follow all these like all these prescriptions that you shouldn't
Speaker 1: trust anyone, right, Like a lot of people in crypto
Speaker 1: are like, Okay, bitcoin goes up, I'd like to buy bitcoin.
Speaker 1: It's the easiest way to buy a bitcoin. And the
Speaker 1: easiest way to buy bitcoin is like there's some website
Speaker 1: where you go and you put in your credit card
Speaker 1: and they'll give you some bitcoin, and when they do that,
Speaker 1: like you're not like, that's not the blockchain, that's not
Speaker 1: you know, you're not like reading the code, like they're
Speaker 1: just holding the bitcoin for you, and they've got like
Speaker 1: a little spreadsheet that says we owe you one bitcoin. Right,
Speaker 1: it's just like a bank, except that it's totally unregulated
Speaker 1: and often much more poorly run than than an actual bank.
Speaker 1: And so most of the scandals and not all, and
Speaker 1: there are some that are like more in the decentralized space,
Speaker 1: but most of the scandals are in what crypto people
Speaker 1: call centralized finance, where instead of like buying a bitcoin
Speaker 1: on the blockchain and checking the coode, you like essentially
Speaker 1: have some company with a website where they owe you
Speaker 1: a bitcoin, and when that happens, the odds of them
Speaker 1: stealing or losing your bitcround are like shockingly high. Right
Speaker 1: exchanges like the sort of term of art that people
Speaker 1: use for these companies that will sell you a bit crnd,
Speaker 1: they're like they sort of work like stock exchanges, but
Speaker 1: not they're not exactly the same as real stock exchanges.
Speaker 1: Over and over again we see crypto exchanges get hacked
Speaker 1: or lose the money in in sort of dumb ways
Speaker 1: or um steal the money. Well, speaking of stealing the money,
Speaker 1: not long after you wrote your big piece on crypto,
Speaker 1: we saw a very big event having to do with
Speaker 1: one of the biggest players in the crypto space. Can
Speaker 1: you talk about exactly what happened in what effect that
Speaker 1: his head? And of course I'm just talking about Sam
Speaker 1: Bankman Free, I should say I don't know exactly what happened.
Speaker 1: I can. I can give you like a fair amount
Speaker 1: of detail that I'm pretty confident in, but but we're
Speaker 1: still like not quite all the way there I knowing
Speaker 1: exactly what happened. But the basic story is that Sam
Speaker 1: Bankman Freed is this sort of charismatic young crypto billionaire
Speaker 1: who ran an exchange, one of these companies that you know,
Speaker 1: takes your credit card and gives you a bitcoin, an
Speaker 1: exchange called ft X. And he also, like he started
Speaker 1: that exchange, he would previously run this trading firm called Alameda,
Speaker 1: like a hedgeho on. Basically that traded crypto. I made
Speaker 1: a lot of money. And the origin story of f
Speaker 1: TX is like they were like, we are good at
Speaker 1: trading bitcoin and making a lot of money, but we
Speaker 1: we would rather trade on a better exchange. We need
Speaker 1: like a better user interface on the exchange. We need
Speaker 1: to trust the exchange more. So they started their own
Speaker 1: exchange and it became one of the biggest crypto exchanges.
Speaker 1: It was based on the Palmers. It was sort of
Speaker 1: known for being you know, a good like good user interface,
Speaker 1: high tech exchange. Sam Bankman Freed or SPF as everyone
Speaker 1: calls him, sort of became a media figure and like
Speaker 1: was and and a and a figure of he like
Speaker 1: he testified before Congress and he was very involved in
Speaker 1: lobbying for crypto regulation, and so ftix definitely created this
Speaker 1: impression that it was a well regulated where like regulatory friendly,
Speaker 1: sort of upstanding exchange. And then it came out one
Speaker 1: day that they had just taken all the customer money
Speaker 1: and that was the end of fd X. Like they
Speaker 1: sort of, you know, the CEO of a rival exchange
Speaker 1: tweeted something mean about the customers started with throwing money,
Speaker 1: and SPF took to Twitter and it was like, everything's fine,
Speaker 1: we have plenty of money. And then like the next
Speaker 1: day they halted withdrawals and then like two days later
Speaker 1: they filed for bankruptcy. And it turns out that there
Speaker 1: is something like an eight billion dollar hole in their
Speaker 1: balance sheet where they took money from customers and forgot
Speaker 1: about it, allegedly and gave it to Alameda, the trading firm,
Speaker 1: which then allegedly lost it or spent it on like
Speaker 1: effective altruism projects and venture capital investments and bar tabs
Speaker 1: at the Margaritaville resort in the Bahamas. So it's a
Speaker 1: really bad story. You know, in broad strokes, that similar
Speaker 1: to running like a stock brokerage or uh financial brokerage
Speaker 1: firm and just taking all the customer money and using
Speaker 1: it for yourself, except that instead of stocks and bombs,
Speaker 1: they're trading cryptocurrencies. Back in April, you actually put that
Speaker 1: question to Sam Bankman Freed himself on an episode of
Speaker 1: Bloomberg's Odd Lots podcast, like you're just like, well, I'm
Speaker 1: in the ponzi business and it's pretty good. So on
Speaker 1: the one hand, I think that's a pretty reasonable response.
Speaker 1: But let me play around with this a little bit, right,
Speaker 1: because that's one framing of this, and I think there's
Speaker 1: like a sort of depressing amount of ablidity. I should
Speaker 1: say here that on Tuesday, Sam Bankman Freed pleaded not
Speaker 1: guilty to charges that he cheated his investors. There's nothing
Speaker 1: you know, block chaining about it. There's nothing decentralized about it.
Speaker 1: For the most part, As I said, like a lot
Speaker 1: of people are not in crypto because they are extremely
Speaker 1: adept technologists who are reading the source code and like
Speaker 1: reviewing the cryptography of the blockchain and and are making
Speaker 1: themselves confident that everything is upstanding, right. A lot of
Speaker 1: people in crypto because they think it'll go up, or
Speaker 1: because they have some sort of like basic philosophical commitment
Speaker 1: to it where they think it's like a cool thing
Speaker 1: to decentralized finance or like you know, unregulated remittances or whatever.
Speaker 1: But in practice they just want to put their money
Speaker 1: at a company they trust. And f t X was
Speaker 1: like really high on the list of companies people trusted.
Speaker 1: It was a really big exchange. It set itself up
Speaker 1: as being like one of the more regulatory friendly, trying
Speaker 1: to make crypto, you know, more mainstream and normal and regulated.
Speaker 1: It Also, like this summer, a lot of other crypto
Speaker 1: projects ran into a lot of trouble and f t
Speaker 1: X or Sam bankman Fried was kind of there to
Speaker 1: bail them all out, you know, people called him Jpeg Morgan.
Speaker 1: He was like the the the Jp Morgan of crypto finance,
Speaker 1: like rescuing all of the worst projects. And so when
Speaker 1: f t X imploded through what seems to be a
Speaker 1: lot of fraud and also a lot of like really
Speaker 1: inept management and like bad accounting and bad risk management
Speaker 1: that happened, it really shook a lot of people's trust,
Speaker 1: not in like crypto as like a concept, but in
Speaker 1: the actual existing, you know, crypto system. Right now, you're like, yeah,
Speaker 1: everything is really, you know, kind of kind of sketchy,
Speaker 1: and that doesn't like undermine the technological case for decentralized finance,
Speaker 1: but it does undermine like the chances that black Rock
Speaker 1: and Vanguard are going to invest a lot of client
Speaker 1: money into crypto because just like the whole space just
Speaker 1: looks a little bit sketchier, right, Like whether whether or
Speaker 1: not any particular like custodian or blockchain has anything to
Speaker 1: do with any of this. If your priors were like
Speaker 1: crypto is kind of sketchy, but getting more mainstream, like
Speaker 1: that's taken a step back now it's like crypto like
Speaker 1: it's still pretty sketchy, you know, Like in my crypto story,
Speaker 1: I wrote that it used to be that the fate
Speaker 1: of every crypto exchange was the stale customers money, because
Speaker 1: for years and years and years and years, if there
Speaker 1: was like the biggest crypto exchange, it eventually vanished in
Speaker 1: a scandal. And then, you know, as I was doing
Speaker 1: this crypto pieces like that's kind of stopped happening, Like
Speaker 1: that's that's not really true anymore, because there's a lot
Speaker 1: of money in crypto exchanges, and you know, like you
Speaker 1: should run it legitimately because you can be a billionaire,
Speaker 1: Like there's so much money, you don't need to steal it.
Speaker 1: Since fd X employed a number of the biggest, highest
Speaker 1: profile we're gonna move to the black chain projects have
Speaker 1: just been like, okay, we're done. We're not doing it.
Speaker 1: Like the Australian Stock Exchange, it was like we're gonna
Speaker 1: move to the black chain there again, never mind, we're
Speaker 1: not doing that. So just like the whole mainstreaming of
Speaker 1: crypto has taken a step back because of this like
Speaker 1: very mainstream looking crypto exchange turning out to be a fraud.
Speaker 1: So I'm on the fence as to whether he's like
Speaker 1: a body or whether ah, he is just kind of
Speaker 1: some clef guy. He's got a bit caught up in
Speaker 1: his own success. I think it was a fiasco, but
Speaker 1: I think that crypto and the blockchain system is fair
Speaker 1: to stay. I know that not the crypto itself, but
Speaker 1: the technology behind it, which is blockchain, is the future
Speaker 1: of the of the world. When we come back the
Speaker 1: government unders a crypto crackdown. Do you think that Western
Speaker 1: regulates is now trying to finally kill it or do
Speaker 1: you see a future in it where governments except it's
Speaker 1: here for the long run. What's going to happen with
Speaker 1: crypto in the future. Given the current downturn in the market,
Speaker 1: Matt In the aftermath of the ft X collapse, we've
Speaker 1: seen increased interest in crypto from the US government, which
Speaker 1: has struggled over how to regulate it. The CFTC, the
Speaker 1: Commodity Futures Trading Commission, thinks it should oversee crypto. The SEC,
Speaker 1: the Security Exchange Commission, which regulates the stock market, says
Speaker 1: no, no no, no no, Crypto should be treated more like a
Speaker 1: stock and the SEC especially is taking this very hard line.
Speaker 1: The chairman, Gary Ginstler is called crypto wild West. And
Speaker 1: then of course there's Congress. Do you think what's happening
Speaker 1: now gives the government more leverage to clamp down on
Speaker 1: crypto in the way they have been before, and do
Speaker 1: they really want to do that? I think it's really
Speaker 1: hard because I think that a lot of people at
Speaker 1: U S regulators and outside of US regulators would say
Speaker 1: that this is proof that crypto is bad and regulating
Speaker 1: crypto is bad. In other words, like there are a
Speaker 1: lot of places that regulate crypto, and when those places
Speaker 1: regulate crypto, they tend to write regulations that are influenced
Speaker 1: by crypto lobbying, right, And they tend to want to
Speaker 1: attract crypto businesses, and they say, we're going to balance
Speaker 1: consumer protection versus the desire to like foster this this
Speaker 1: crypto ecosystem and have a lot of crypto hedge funds
Speaker 1: and exchanges located in our jurisdiction. Right. The Bahamas is
Speaker 1: kind of like that, and the US has a lot
Speaker 1: of people who think like that. A lot of Congress
Speaker 1: people think that the CFTC has seemed curious about that.
Speaker 1: The SEC has had a different view, which is that
Speaker 1: crypto is entirely crime, and rather than write new regulations
Speaker 1: that would balance you know, fostering crypto or consumer protection.
Speaker 1: They will just crack down on upto whenever they see it.
Speaker 1: And I don't know, like, I'm not sure that view
Speaker 1: is correct or that it's been vindicated by the claps
Speaker 1: of f t X, but it seems vindicated by the
Speaker 1: claps of ft X, right because f t X was
Speaker 1: going to the CFTC at having meetings and saying this
Speaker 1: is how we should regulate crypto, and the CFTC is like, yes,
Speaker 1: you're right, you have interesting ideas here. And then you know,
Speaker 1: Sam Bankmantry was going to Congress and saying this is
Speaker 1: how we should regulate crypto, and people were like, oh,
Speaker 1: thanks for the campaign donation and like, you have really
Speaker 1: good ideas here, and then they would go to SEC
Speaker 1: and the like you should all be in jail. And
Speaker 1: I think there's definitely an argument that that was wrong
Speaker 1: and that if the SEC had been or if let's
Speaker 1: a U S regulation generally have been more thoughtful about
Speaker 1: regulating crypto, you could have like a sort of clear
Speaker 1: regulatory structure for running crypto exchanges in the US, then
Speaker 1: more crypto trading would happen in the U S under
Speaker 1: that clear regulatory structure. And it wouldn't just go poof
Speaker 1: in a in a ceo of fraud, right because like
Speaker 1: like US public companies that are regulated and like examined
Speaker 1: by regulators. But I think that all in all, the
Speaker 1: view that is winning out here is that crypto is
Speaker 1: not really ready for prime time, and that it has
Speaker 1: been good for the world, that it is still relatively
Speaker 1: small and relatively isolated from the mainstream financial system and
Speaker 1: you know, not where grandmothers put their life savings. And
Speaker 1: I think that the worry about crypto regulation is like
Speaker 1: the SEC puts out rule saying here's how you can
Speaker 1: run a crypto exchange. Then like black Rock and Fidelity
Speaker 1: do put like ten percent of customer asselets enter crypto,
Speaker 1: and like banks start borrowing against crypto, and then the
Speaker 1: next time a crypto exchange explodes, like it takes down
Speaker 1: the banking system with it. This has not led to
Speaker 1: calls for more regulation of crypto, like quite the opposite.
Speaker 1: It's led to op ed saying we should not regulate
Speaker 1: crypto and just let it burn, because I think that
Speaker 1: regulating crypto is a part of mainstreaming and like that's
Speaker 1: clearly what SPF wanted, right, Like that's why FTX was
Speaker 1: lobbying for more regulation, because if you get it regulated,
Speaker 1: it becomes more mainstream and more people will use it
Speaker 1: and becomes more integrated with the regular financial system. And
Speaker 1: then ultimately you could have a situation where, you know,
Speaker 1: if a crypto exchange goes bankrupt, it will bring down
Speaker 1: the banking system, and you go to the FED and
Speaker 1: you say, we need you to prop up this token
Speaker 1: because otherwise there will be a recession in the banks
Speaker 1: will collapse. Like I'm not sure that was like exactly
Speaker 1: what what Sam bankmun Food was thinking, but it's a
Speaker 1: kind of like the worry about regulation of crypto. And
Speaker 1: so the other reason is that there's not been calls
Speaker 1: for a clear regulation of crypto is like, you know,
Speaker 1: everyone who was writing those regulations is incredibly tainted by
Speaker 1: the ft X claps. Like all of the thought about
Speaker 1: crypto regulation has been like to some extent, driven by
Speaker 1: crypto frames because they want that regulation. And so if
Speaker 1: you're a congress person who was sponsoring a bill that
Speaker 1: like was you know, advised by ft X, you're not
Speaker 1: talking about that anymore. And what kind of regulation was
Speaker 1: Sam Bang been freeing? Other people who were lobbying for regulation,
Speaker 1: What did they want that regulation to look like. The
Speaker 1: main thing is that people had a preference that crypto
Speaker 1: would be regulated by the FTC. They wanted crypto to
Speaker 1: be treated as a commodity rather than a security, because
Speaker 1: it's easier to do disclosure about that, it's easier to
Speaker 1: start an exchange, and there's just the view that the
Speaker 1: CFTC is more crypto friendly Sam Bankman Freed in particular,
Speaker 1: had a lot of ideas about the mechanics of how
Speaker 1: to run a futurist trading platform and how to like
Speaker 1: do margin calls that seemed sort of technical when he
Speaker 1: proposed them, and like you know, talked about them in public,
Speaker 1: and then they actually dovetailed very nicely with how his
Speaker 1: exchange collapsed. Basically, he had all these ideas about like
Speaker 1: automated risk management in a way that would make it
Speaker 1: impossible for an exchange of the collapse, and then he
Speaker 1: wasn't doing those things at all. So there's a lot
Speaker 1: about like sort of technical arguation details of regulation. But
Speaker 1: it's just like if the CFTC passes some technical regulations
Speaker 1: about how to run a crypto exchange, it doesn't matter
Speaker 1: what the details are. What matters that the CFTC is
Speaker 1: that you can run a crypto exchange, right, even a
Speaker 1: crypto future ex change. There are crypto exchanges in the US,
Speaker 1: but they offer a relatively narrow suite of products compared
Speaker 1: to what ft actually offering. And even so they are
Speaker 1: you know, coin Base is the main one, like the
Speaker 1: big US. You know, it's a public company. It also
Speaker 1: tries to be you know, good, a good citizen, but
Speaker 1: it offers trading and a lot of cryptocurrencies and the
Speaker 1: sec things that a lot of them are securities and
Speaker 1: that it's illegal to offer that trading with that registering,
Speaker 1: the securities exchangion, so stuff like that about clarity around
Speaker 1: what's the security and who regulates it and if cryptocurrencies
Speaker 1: are securities, like what you need to disclose in order
Speaker 1: to trade them. Those are the sort of main things
Speaker 1: that people want. But it's it's really you know, it's
Speaker 1: like it almost doesn't matter. What matters is like the
Speaker 1: regulations exist so that you know, it's kind of like
Speaker 1: once the regulations exists, you can work with anything. But
Speaker 1: like you need a regulation that says somehow you can
Speaker 1: buy crypto, right, and then how you buy it doesn't
Speaker 1: it almost doesn't matter. You see a lot of people
Speaker 1: describing what's happening right now as a crypto winter, where
Speaker 1: things are looking pretty cold and bleak when you look
Speaker 1: down the road. I don't know, a couple of years
Speaker 1: from now, five years, even ten years from no, what
Speaker 1: does crypto look like. Does it survive and thrive, does
Speaker 1: it become something different? I don't know. It's really hard
Speaker 1: because I think the two sort of avenues for for
Speaker 1: it to work are one is like the more like
Speaker 1: the commitment to more decentralized, you know, less trusting world
Speaker 1: where it's like no, no, seriously, guys, this time we
Speaker 1: need to make use of the innovations that crypto has
Speaker 1: offered to stop getting hacked all the time, to stop
Speaker 1: having people steal our money all the time, right, Like,
Speaker 1: crypto is a way to have your money in a
Speaker 1: way that you're not trusting any central intermediaries and it
Speaker 1: can't be stolen from you. And you know, in practice,
Speaker 1: crypto justst is about getting your money stolen over and
Speaker 1: over again. So I think that like it is certainly
Speaker 1: the case that like overall this year, a lot of
Speaker 1: centralized intermediaries have all imploded in a way that makes
Speaker 1: you think you shouldn't trust the people who around them
Speaker 1: that like defy. The decentralized finance ecosystem has like held
Speaker 1: up pretty well, so when people think, like, instead of
Speaker 1: going to an exchange that is like a company with
Speaker 1: a website that will take your money, we should use
Speaker 1: like the blockchain technology to build exchanges that kind of
Speaker 1: run on their own and are transparent. That pitch attracted
Speaker 1: a lot of people in crypto a year ago because
Speaker 1: people in crypto are philosophically disposed to think that's good.
Speaker 1: But it's much more attractive relatively speaking now because again
Speaker 1: it turns out you can't trust the centralized exchanges. So
Speaker 1: that's one avenue is like the decentralization of crypto really
Speaker 1: becomes more important, and people build like usable interfaces for
Speaker 1: that so that you don't have to be a computer
Speaker 1: scientist to kind of use a lot of decentralized crypto applications.
Speaker 1: The other one is regulation. Right enough, people say you
Speaker 1: know there is something worth saving here, we're gonna make
Speaker 1: it so that, like US regulated exchanges are very trustworthy,
Speaker 1: and then we're gonna have audits and we're going to
Speaker 1: have some sort of like prudential supervisory authority checking you
Speaker 1: out and making sure that you're not just stealing your
Speaker 1: customers money, and that that felt very likely to me
Speaker 1: six months ago. The less push for that now, but
Speaker 1: I'm not I don't think it's impossible that that will
Speaker 1: come back, and then that will be the sort of
Speaker 1: solution here, Matt Lavin, thanks for talking to me today.
Speaker 1: Thank you. You can read Matt Levine's brilliant crypto story
Speaker 1: for Business Week at Bloomberg dot com. Thanks for listening
Speaker 1: to us here at The Big Take, the daily podcast
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