WEBVTT - Bitcoin's Money-Printing Machine Breaks Down

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<v Speaker 1>This is Bloomberg Business Week. I'm Carol Masser and I'm

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<v Speaker 1>Bloomberg Quick Takes Tim Stanovk. We're here every day bringing

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<v Speaker 1>pm Eastern Time on Bloomberg Radio or watch us on

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<v Speaker 1>YouTube search Bloomberg Global News. So it's only June, and

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<v Speaker 1>yet what a year it's already been for bitcoin. We

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<v Speaker 1>hit a high of what more than sixty four thousand.

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<v Speaker 1>Just today we went back below thirty thousand, and now

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<v Speaker 1>we're back up above that mark twenty thousand, nine hundred

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<v Speaker 1>and four dollars. Carol, it's been in here, but who's

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<v Speaker 1>counting but fifty below the record, So it's quite a

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<v Speaker 1>swing in a short period of time. Volatility is the

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<v Speaker 1>name of the game. Fortunately, we have Katie Greifeld, who's

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<v Speaker 1>Bloomberg News cross Asset reporter, also Bloomberg Quick Take, co

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<v Speaker 1>anchor of quick Take stock with menon Eastern Time on

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<v Speaker 1>Bloomberg quick Takes. She's joining us now from New York City. Katie,

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<v Speaker 1>you have a new article out. It's called Bitcoin's money

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<v Speaker 1>printing machine breaks down as futures fall Bitcoin, it's not

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<v Speaker 1>just about for hedge funds um buying and holding it.

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<v Speaker 1>What's going on here, That's exactly right. So there's a

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<v Speaker 1>lot more to crypto trading than just buying and selling

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<v Speaker 1>these coins. And there's been that's just really reliable trade

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<v Speaker 1>called the basis trade, and it works because if you

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<v Speaker 1>look at the Bitcoin futures curve, those longer dated contracts

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<v Speaker 1>they traded a premium to the shorter daily contracts and

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<v Speaker 1>to the price of bitcoin in the spot market. So

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<v Speaker 1>it's pretty simple if you break it down, a hedge

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<v Speaker 1>fund or any other sort of institutional type trader, they

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<v Speaker 1>would buy uh crypto in the spot market and then

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<v Speaker 1>sell the longer dated future and then basically pocket the

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<v Speaker 1>difference between those two prices. And it was basically risk

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<v Speaker 1>free because of your counterparty is the CME group, but

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<v Speaker 1>not a lot of counterparty risks. But that's collapsed. You've

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<v Speaker 1>seen Bitcoin futures across the curve collapse over the last

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<v Speaker 1>several weeks, and that's because really that built in bullishness

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<v Speaker 1>that because of bitcoin scarcity, you had that nice premium

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<v Speaker 1>out the curve that's really come down and the market

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<v Speaker 1>kind of doesn't know where it wants to go, all

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<v Speaker 1>right to this arbitrage. I mean, I feel like to me,

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<v Speaker 1>it's a reminder that it's just kind of a play

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<v Speaker 1>in the markets, or is it? You know that argument,

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<v Speaker 1>is bitcoin, Katie, something much more substantial, and we're moving

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<v Speaker 1>towards it becoming kind of a normal and accepted part

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<v Speaker 1>of our financial system versus man, this is just a

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<v Speaker 1>really cool trade. I mean, it's a great way to

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<v Speaker 1>make money. And for traditional Wall Street players, there's so

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<v Speaker 1>many different ways to bring sort of the traditional type

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<v Speaker 1>of arbitrage as you would try to do to the

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<v Speaker 1>bitcoin market, and that's what you saw here, and it's

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<v Speaker 1>not working anymore. And this was a way to get

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<v Speaker 1>pretty much guaranteed double digit annual games doesn't work, and

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<v Speaker 1>so you're left to deal really with the technicals because

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<v Speaker 1>again bitcoin, it doesn't have any fundamentals, doesn't have any

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<v Speaker 1>cash flows, and the technicals don't look too good right

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<v Speaker 1>now either. So, uh, it's it's hard to say where

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<v Speaker 1>it's going to go from here, but the stakes are

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<v Speaker 1>much higher because Carol, like you say, uh, you know,

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<v Speaker 1>Wall Street is much more in this trade than it

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<v Speaker 1>has been in the past few years. So what are

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<v Speaker 1>your sources telling you, Katie about this, this kind of

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<v Speaker 1>arbitrage being over? Obviously, nobody knows where it goes from here,

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<v Speaker 1>but it is the idea that if it starts rising again,

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<v Speaker 1>the retail traders will will pile in again and they'll

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<v Speaker 1>drive that price higher. The bullishness will be back, the

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<v Speaker 1>demand will be back. Yeah, so chatting the sources about

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<v Speaker 1>what's going on. So it may be dead for now,

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<v Speaker 1>but there is a hope that maybe it could come

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<v Speaker 1>back in the weeks and months to come. What's happened here,

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<v Speaker 1>it's partly that basically too many people found out about it.

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<v Speaker 1>You know, it's great the first you know, the first

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<v Speaker 1>or second or you know, hundreds of trader in a trade,

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<v Speaker 1>but if you're you know, the ten thousand's, it's not

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<v Speaker 1>gonna look too good. So maybe as some of the

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<v Speaker 1>frost comes out, you know, the traders onto walking through

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<v Speaker 1>their hopeful that this could come back, but for right now,

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<v Speaker 1>it's it's not. It's not a great trade. Do you

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<v Speaker 1>feel like bitcoin and crypto we can liken to anything

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<v Speaker 1>in our financial history? You know? I think about when

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<v Speaker 1>high yield junk bonds were kind of considered a new

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<v Speaker 1>fangled and wonky type of financial product and now it's

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<v Speaker 1>part of the norm, right, So is there something we

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<v Speaker 1>can kind of liken bitcoin and crypt crypto to or not? Really?

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<v Speaker 1>It's a great question. And there is this, uh sort

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<v Speaker 1>of name or inside joke in the crypto community that

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<v Speaker 1>when you do get crashes like this, people will say,

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<v Speaker 1>I'm in it for the technology, you know, they go

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<v Speaker 1>back to the roots. They're in it for the blockchain.

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<v Speaker 1>Blockchain technology that will maybe revolutionize the way we pay

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<v Speaker 1>for things, maybe it'll revolutionize the banking system. So you're

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<v Speaker 1>you are seeing more of that emerged that you know,

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<v Speaker 1>we're not. It's there's still value here, But in terms

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<v Speaker 1>of what it reminds me of it, I mean, it's

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<v Speaker 1>hard to say. In some ways, it just feels completely new. Yeah,

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<v Speaker 1>she didn't say tulips, you did, and you didn't say

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<v Speaker 1>you didn't say, you know, it wasn't like the tech

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<v Speaker 1>rally right. I don't. I don't. Wouldn't compare it to

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<v Speaker 1>the tech rawl. It wouldn't do it. It's new, it's new,

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<v Speaker 1>and it does have the potential to kind of, you know,

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<v Speaker 1>to really disrupt um our system, our financial system. And

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<v Speaker 1>I'm still kind of intrigued by blockchain, Tim, you got

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<v Speaker 1>I can do? I do because this all comes at

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<v Speaker 1>a time when institutional investors have an increased interest in

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<v Speaker 1>bitcoin and cryptocurrency, and I wonder, Katie, if what if

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<v Speaker 1>the volatility that we've seen over the last six months

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<v Speaker 1>makes them second? Guess, Okay, wait a second, even though

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<v Speaker 1>our clients want us to do this, um, is this

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<v Speaker 1>something we want to touch and we have about forty

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<v Speaker 1>thirty seconds left. That's what I would love to know too,

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<v Speaker 1>because it's hard to look at bitcoin right now and

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<v Speaker 1>the volatility that we've seen and say, as a corporate treasurer,

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<v Speaker 1>I want to put this on my balance sheet. This

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<v Speaker 1>is a great cash alternative. So that will definitely be

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<v Speaker 1>a thread to watch. But I'm guessing if you ask

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<v Speaker 1>Michael Saylor, he'll say I'm okay with this, but he

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<v Speaker 1>gets it. You had him on last week and he

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<v Speaker 1>seem all in and you know, issuing debt or selling

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<v Speaker 1>debt like he's using it to buy more and more bitcoin.

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<v Speaker 1>And we know that some of those purchases, depending on

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<v Speaker 1>when he bought them, could be a little bit underwater.

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<v Speaker 1>Right now, micro Strategy shares down by four point two percent,

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<v Speaker 1>but it's not coming undone, it's not going apart. Four

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<v Speaker 1>some would say would be managable. Kitty Gray Felt, Bloomberg News,

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<v Speaker 1>crosses at reporter Bloomberg Quick take co anchor. Thank you

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<v Speaker 1>so much. You're listening to Bloomberg Radio. I'm bro mac journal. Yeah,

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<v Speaker 1>but you let me drive? Oh no, no, no, no,

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<v Speaker 1>who's going to drug honey? Please, I'll do the riding gravel.

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<v Speaker 1>I want to drive, Just drive baby? The question dry? Yeah,

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<v Speaker 1>this is the drive to the globe. Give me thanks,

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<v Speaker 1>we'll drying us. Dawn on Bloomberg Radio. All right, we've

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<v Speaker 1>got just about ten and a half minutes left in

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<v Speaker 1>today's trading session. J Powell. We heard, he came, he got,

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<v Speaker 1>he spoke away. Stocks are higher, thank you very much.

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<v Speaker 1>And stocks are higher, and yields I think they even

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<v Speaker 1>backed off a little bit. So it seems like he

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<v Speaker 1>certainly has created some calm or kept the calm and

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<v Speaker 1>peace in the markets. Craig Fair is investment strategist at

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<v Speaker 1>Edward Jones. Let's see what he has to say. He's

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<v Speaker 1>on the phone from St. Louis. Craig, we are actually

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<v Speaker 1>coming off our highs of the session, but as J.

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<v Speaker 1>Powell was speaking, we did see an uptick in stocks

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<v Speaker 1>and we really did see uh, it looked like yields

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<v Speaker 1>maybe back off just a hair there. Um. Any comments

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<v Speaker 1>on J. Powell, Yeah, I think I think your comment

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<v Speaker 1>he came, he spoke dr higher. I mean that could

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<v Speaker 1>be uh, maybe the moniker for the last fifteen months,

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<v Speaker 1>if not the last ten years. Um. I think today,

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<v Speaker 1>in particular, we did see a notable move higher during

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<v Speaker 1>Chairman Poles testimony. During the day, stock flatish or most

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<v Speaker 1>of the morning. I think again, taking a bit of

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<v Speaker 1>a breather after two whipsaw days on Friday and Monday,

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<v Speaker 1>I think that I think the reaction today was if

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<v Speaker 1>Friday was a everything's about the change from the fad,

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<v Speaker 1>if Monday was okay, maybe not. I think today was

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<v Speaker 1>just a little bit of a calming effect. As Pal

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<v Speaker 1>reiterated the fact that the FED is not going anywhere

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<v Speaker 1>anytime soon, he also took took care to make sure

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<v Speaker 1>that he noted that they're going to continue to focus

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<v Speaker 1>on the employment mandate and that they still believe inflation

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<v Speaker 1>is transitory, and that's exactly what the market wants to

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<v Speaker 1>hear at this point. So was the volatility at the

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<v Speaker 1>end of last week. Was was that warranted? I think

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<v Speaker 1>to a degree only because you know, the word we've

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<v Speaker 1>been using to describe this environment up until last week

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<v Speaker 1>was a bit of complacency. The market felt a little

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<v Speaker 1>too complacent about inflation risk equities continued to climb higher

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<v Speaker 1>seemingly every single day and shrug off all the risks.

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<v Speaker 1>I still think that the opportunities, the tail winds far

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<v Speaker 1>outweigh the headwinds at the stage. But I think that

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<v Speaker 1>was just shaking a little bit of a loose fruit

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<v Speaker 1>out of the tree, which is necessary, particularly in a

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<v Speaker 1>bull market as strong and as steady as this one

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<v Speaker 1>has been over the last fifteen months or so. So

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<v Speaker 1>I think it did serve to wake the market up

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<v Speaker 1>a little bit that the Fed isn't going to keep

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<v Speaker 1>its foot smashed on the accelerator forever um, and probably

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<v Speaker 1>put a little bit more attention back on the will

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<v Speaker 1>they won't they And part every single word that every

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<v Speaker 1>FED governor says now for the next several weeks, UM

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<v Speaker 1>probably just restored a little bit more realism into the market,

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<v Speaker 1>is probably the way I would I would characterize it.

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<v Speaker 1>And let's not forget that on a historical basis, folks,

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<v Speaker 1>look at interest rates, they are still really really low,

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<v Speaker 1>and they're really really low at the longer end of

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<v Speaker 1>the yeeld curve. So it's not like we're going back

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<v Speaker 1>to the levels we saw in the seventies or when

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<v Speaker 1>we saw you know, people paying double digit high percentage

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<v Speaker 1>you know, teams uh, mortgage rates. I mean, we need

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<v Speaker 1>to put things in perspective, and we do expect the

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<v Speaker 1>economy to get back on track. Having said that, do

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<v Speaker 1>you agree with the Fed to maybe let the economy

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<v Speaker 1>run a little hot, especially to work off those seven

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<v Speaker 1>million plus jobs that are now are seven million Americans

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<v Speaker 1>that are now out of work. I generally agree insofar

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<v Speaker 1>as I would prefer the FED to air on the

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<v Speaker 1>side of um letting the economy on hot, versus airing

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<v Speaker 1>on the side of undercutting the recovery too soon. And

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<v Speaker 1>and again we could go back to the sixties and

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<v Speaker 1>there was a there was a kind of a mantra

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<v Speaker 1>from the FED that changed again in the nineties, where

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<v Speaker 1>the FED was much more tolerant of inflation, rightfully so,

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<v Speaker 1>because operation was running low as globalization was picking back up.

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<v Speaker 1>I think that paradigm has changed for a whole host

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<v Speaker 1>of reasons. But obviously the pandemic has shifted things around,

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<v Speaker 1>and I think inflation is a much more real threat

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<v Speaker 1>than it was for the past two or three decades. Um.

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<v Speaker 1>All that being said, I think that I think the

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<v Speaker 1>FEDS approach now to outcome based um policy as opposed

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<v Speaker 1>to expectation based policy, is probably the right one, but

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<v Speaker 1>it also it should be it should be noted that

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<v Speaker 1>also certainly raises the risk that the FED makes a

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<v Speaker 1>policy mistake or falls behind the curve. But do you

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<v Speaker 1>think that's what's out the markets a little skinish at

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<v Speaker 1>this stage. Well, because it's it's it's an outcome based

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<v Speaker 1>approaches is good for the economy, right the idea of

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<v Speaker 1>getting these people, getting seven million Americans back to work.

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<v Speaker 1>But if the concern is inflation and that creates some

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<v Speaker 1>hotspots throughout the economy when it comes to prices, how

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<v Speaker 1>do markets react? I think the markets are going to

0:11:20.640 --> 0:11:22.120
<v Speaker 1>react in more of a knee jerk fashion like we

0:11:22.160 --> 0:11:23.920
<v Speaker 1>saw over the last couple days. Because I think you're

0:11:23.960 --> 0:11:26.439
<v Speaker 1>spot on, which is the FED will now take the

0:11:26.520 --> 0:11:30.400
<v Speaker 1>approach of being tolerant of higher inflation until they believe

0:11:30.520 --> 0:11:33.520
<v Speaker 1>higher inflation is here to stay, and we'll only know

0:11:33.679 --> 0:11:36.240
<v Speaker 1>that once it's here. And I think that's the real

0:11:36.720 --> 0:11:39.920
<v Speaker 1>concern here, which is the market is taking some comfort,

0:11:40.360 --> 0:11:42.240
<v Speaker 1>or has taken some comfort at least, and the fact

0:11:42.280 --> 0:11:44.920
<v Speaker 1>that the Fed isn't going to um pull the turn

0:11:44.960 --> 0:11:47.439
<v Speaker 1>the music off or pull off the rug prematurely. But

0:11:47.559 --> 0:11:49.719
<v Speaker 1>it does introduce a different kind of tail risk, which

0:11:49.760 --> 0:11:51.920
<v Speaker 1>is at the FED falls behind the curves. Maybe it's

0:11:53.520 --> 0:11:55.839
<v Speaker 1>for the FEDS fell slightly behind the curve and tried

0:11:55.880 --> 0:11:57.679
<v Speaker 1>to catch up pretty quickly, and it wasn't great for

0:11:57.760 --> 0:12:00.280
<v Speaker 1>stocks or bonds for a very short period of time, right,

0:12:00.440 --> 0:12:02.600
<v Speaker 1>I don't think, but you know, back to your earlier point,

0:12:02.640 --> 0:12:04.920
<v Speaker 1>I don't think this is the seventies. And then perspective

0:12:05.000 --> 0:12:07.480
<v Speaker 1>use the word perspective, which couldn't be more perfect here.

0:12:07.920 --> 0:12:10.440
<v Speaker 1>Interest rates, for goodness, six tenure yields are still at

0:12:10.960 --> 0:12:14.160
<v Speaker 1>one fifty um and so that's that shouldn't be lost

0:12:14.240 --> 0:12:15.599
<v Speaker 1>on the market at the stage, and I think some

0:12:15.760 --> 0:12:20.880
<v Speaker 1>days it is yeah, no, exactly exactly, And and we

0:12:21.000 --> 0:12:23.520
<v Speaker 1>know the FED. This is something that we've heard from

0:12:23.559 --> 0:12:27.400
<v Speaker 1>several FEDS I feel like over the last decade or so,

0:12:27.720 --> 0:12:30.640
<v Speaker 1>is that they will adjust according to what's needed and

0:12:30.760 --> 0:12:34.080
<v Speaker 1>according to what their dual mandate shows them. In the meantime,

0:12:34.360 --> 0:12:36.439
<v Speaker 1>what does it mean in terms of how you invest

0:12:36.480 --> 0:12:41.360
<v Speaker 1>in this market environment? We're still broadly favorable on equities,

0:12:41.400 --> 0:12:43.079
<v Speaker 1>and I think in an environment we look at what

0:12:43.160 --> 0:12:45.200
<v Speaker 1>we call the three legged stool fundamentals, which is when

0:12:45.240 --> 0:12:48.520
<v Speaker 1>you have a growing economy, that growing economy than fosters

0:12:48.600 --> 0:12:51.800
<v Speaker 1>rising corporate profits and all of that is uh is

0:12:51.840 --> 0:12:55.679
<v Speaker 1>supported by accommodative monetary policy. Over history, that's been a

0:12:55.720 --> 0:12:58.960
<v Speaker 1>good a good environment to be fully invested in equities.

0:12:59.000 --> 0:13:01.240
<v Speaker 1>And that's exactly where we are at this stage. It

0:13:01.280 --> 0:13:03.800
<v Speaker 1>doesn't mean we're not going to have these these bouts

0:13:03.840 --> 0:13:05.679
<v Speaker 1>of indigestion, which I think are going to become much

0:13:05.720 --> 0:13:08.199
<v Speaker 1>more frequent as we move forward. And that's the you know,

0:13:08.280 --> 0:13:10.720
<v Speaker 1>we have a neutral allocation to bonds within that strategy

0:13:10.760 --> 0:13:13.640
<v Speaker 1>as well, because that is going to be the portfolio insurance,

0:13:13.679 --> 0:13:16.760
<v Speaker 1>so to speak. When we get those bouts of of indigestion.

0:13:16.880 --> 0:13:19.040
<v Speaker 1>But you know, our view is you want to continue

0:13:19.120 --> 0:13:22.000
<v Speaker 1>to uh to diversify into a kind of a risk

0:13:22.080 --> 0:13:25.400
<v Speaker 1>on environment where until we see an economy that's showing

0:13:25.440 --> 0:13:27.840
<v Speaker 1>cracks or until we see an environment where the fet

0:13:27.960 --> 0:13:30.679
<v Speaker 1>is truly tightening. Right, we're talking at this stage so

0:13:30.840 --> 0:13:33.959
<v Speaker 1>much about just being less accommodative. We will be a

0:13:34.040 --> 0:13:36.880
<v Speaker 1>bit more cautious when when the when the conversation shifts

0:13:36.920 --> 0:13:39.760
<v Speaker 1>to tightening, because that's probably when the economic cycle and

0:13:39.800 --> 0:13:42.000
<v Speaker 1>the business cycle are going to start to uh to

0:13:42.160 --> 0:13:44.080
<v Speaker 1>wear thin. But I think we're still a ways away

0:13:44.120 --> 0:13:45.760
<v Speaker 1>from that. So you get more specific there when the

0:13:45.800 --> 0:13:49.240
<v Speaker 1>conversation shifts to tightening, Does that mean when the Fed

0:13:49.360 --> 0:13:52.720
<v Speaker 1>hikes interest rates or does it mean before that? Yeah,

0:13:52.760 --> 0:13:54.599
<v Speaker 1>it means before that so far as in just like

0:13:54.720 --> 0:13:57.079
<v Speaker 1>we the conversation that picked up last week, which is

0:13:57.520 --> 0:13:59.839
<v Speaker 1>it's the talk about the talk of tapering, right, the

0:14:00.080 --> 0:14:02.560
<v Speaker 1>is not gonna taper until much later this year, if

0:14:02.600 --> 0:14:05.320
<v Speaker 1>at all this year, maybe December. UM time will tell

0:14:05.360 --> 0:14:08.000
<v Speaker 1>on that the market is going to um to get

0:14:08.000 --> 0:14:10.199
<v Speaker 1>a little more jittery when when the Fed starts talking

0:14:10.240 --> 0:14:12.760
<v Speaker 1>about it. And last week was the market talking about

0:14:12.800 --> 0:14:15.199
<v Speaker 1>the FED talking about it, and so I think exactly

0:14:15.240 --> 0:14:19.200
<v Speaker 1>to your point, Uh, real restrictive policy is the actual

0:14:19.360 --> 0:14:22.080
<v Speaker 1>rate hikes that are are going to come for um

0:14:22.240 --> 0:14:25.400
<v Speaker 1>sometimes you know would be would be our our best bet.

0:14:25.880 --> 0:14:28.600
<v Speaker 1>James Bullard mentioned maybe two that's still a ways off.

0:14:29.320 --> 0:14:32.320
<v Speaker 1>The market will start to recalibrate readjust in advance of

0:14:32.440 --> 0:14:35.960
<v Speaker 1>those actual rate hikes. But that's the that's the policy

0:14:36.040 --> 0:14:38.160
<v Speaker 1>that actually starts to undermine echhen you use at that

0:14:38.280 --> 0:14:40.640
<v Speaker 1>stage exactly and in some ways folks were saying at

0:14:40.680 --> 0:14:43.000
<v Speaker 1>this least most recent FED meeting was the FED plane

0:14:43.040 --> 0:14:44.720
<v Speaker 1>catch up a little bit about what we've already seen

0:14:44.800 --> 0:14:47.960
<v Speaker 1>play out in the market. So watch in particular that

0:14:48.080 --> 0:14:50.440
<v Speaker 1>bond market in terms of what's going on. Hey, Craig,

0:14:50.600 --> 0:14:54.400
<v Speaker 1>good stuff, Craig Fair. Uh so appreciate it. Investment strategies

0:14:54.440 --> 0:14:58.440
<v Speaker 1>at every Jones on the phone from St. Louis. Thanks

0:14:58.480 --> 0:15:02.320
<v Speaker 1>for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud,

0:15:02.440 --> 0:15:04.600
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0:15:04.640 --> 0:15:07.200
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0:15:07.360 --> 0:15:11.800
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